Like A Red Rag To A Bull

[RichM]

Who will history remember as Galileo and Copernicus rolled into one?

Week in, week out, he manages to be one of our favourites.

Japan took 30 years to start applying the new techniques of monetary management successfully, resulting in the economic recovery that began there in 2003. But in Europe central bankers and politicians still refuse to learn these lessons. They are still trying to apply the simplistic monetarist theory once believed to be the only alternative to the old gold standard, but thoroughly discredited by the Greenspan Fed.

Sooner or later, however, even the flat-earth monetarists of Europe will wake up to the revolution in economic cosmology wrought by Alan Greenspan — and he will be remembered as Copernicus, Columbus and Galileo, rolled into one.

Will people be saying the same sorts of things in 5 years? Discuss.

[van hoogstraten]

if the Mogambo Guru on the Daily Reckoning were to read Kaletsky's latest nonsensical gibberish he would SHSWML (split his sides with manic laughter)

[Michael]

this Blairite baffoon Kaletsky has been spouting this pro Anglo-Saxon and anti-European claptrap fot God knows how long.................

[FTBagain]

There is one significant flaw in all of this, namely, time! If this new system is still developing then we have little or no information as to its effectiveness, because the results are not yet in. We will need more than one economic cycle, to be stastically accurate you need 10 cycles. That represents about 150 to 200 years of economic activity under the new 'stabilised' system.

So we have thrown away a system that developed over thousands of years in the space of say 50 to 60 years since WW2 and claim that the new system, which is still developing, is a huge success.

Hmm. A little previous if you ask me.

[Duplex]

Kalensky is one of those misty-eyed souls who believes that the American trade deficit is a good thing, that Greenspan is a genius because he has manipulated the markets, the CPI and money supply to create the illusion of economic stability and wealth. What he suggests is that we can create an unlimited means of exchange by printing money on toilet paper, then using this to pay the Chinese for their labour, what a whiz.

Consider the Caribs of the West Indies who used shells as a means of exchange, now if we could beam Kalensky back six hundred years what advice would he have for the natives, something like this I’d imagine;

“stop tending your crops and livestock and get down to the beach and start collecting as many shells as you can, then go to the next island and exchange your shells for the fruits of their labour”

The Caribs would no doubt explain to Kalensky that doing this would be madness as it would debase the means of exchange, and destroy their ability the produce goods to feed, cloth and shelter themselves. It’s a pity that Americans cant see this.

Mr Kalensky has a company ‘advising’ large financial institutions, I am starting to believe that he is the one that is being advised, advised what to write.

[gabor]

This is basic macroeconmics, if there is slack capacity in the system, monetary stimulus works. if not, there will be inflation.

There is a tremendous amount of overcapacity in Asia now, AG discovered it and renamed it as "gain in productivity".

Once capacity building reaches its limits in Asia ( most probably because of the steepening of the oil and coal supply ), the whole scheme will come down in inflationary recession then deflationary recession.

The deflation will come, because AG will be discredited by the preceeding inflation.

[Duplex]

Once capacity building reaches its limits in Asia ( most probably because of the steepening of the oil and coal supply ), the whole scheme will come down in inflationary recession then deflationary recession.

Agreed.

" If the American People ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children will wake up homeless on the continent their fathers occupied. The issuing of money should be taken from the banks and restored to Congress and the people to whom it belongs."

-Thomas Jefferson

[Biriani]

... it was Mr Greenspan who took the next and even more important step: he showed that a central bank that had successfully tamed inflation could then move on to maximise economic growth and minimise unemployment, while always ensuring that price stability was maintained."

This is exactly the kind of illusion that Mervyn King and his merry band have been trying to correct in their speeches over the last couple of weeks.

Monetary policy can be used to promote growth an employment, in the sense that if productivity is high and the economy has capacity, lower interest rates can allow higher growth without creating inflation.

But if those conditions don't hold, if productivity growth slows or if the economy faces supply-side shocks like high oil prices or and end to cheap chinese imports, you can't do that any more.

Mervyn has been very clear - in those conditions, the Bank's mandate is to target inflation. Don't expect any concessions to supporting growth and employment when the going gets rough.