Posted on 01/03/2014 10:22:34 AM PST by SeekAndFind
Arthur Laffer is a legend in Washington, having been the leading voice on President Ronald Reagan's hawkish Economic Policy Advisory Board.
His "Laffer Curve," which argued that there are diminishing returns after a certain point of taxation, was taken as gospel.
If his views are not quite as frequent a presence in public debate, it's largely because Laffer's pet issues, regulation and taxes, took a back seat during the George W. Bush and Barack Obama administrations.
But Laffer himself still occasionally makes appearances on the public scene.
And in June of 2009, he penned an op-ed warning excessive quantitative easing would inevitably lead to higher inflation and interest rates.
...we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits ...Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.
Obviously, nothing like that happened.
In an interview with Business Insider from his office in Tennessee, Laffer admitted that he was wrong. The old maxim that dictates increasing the availability of cash through lower interest rates will lead to higher prices, he said, may need to be reexamined.
"Usually when you find the model this far off, you've probably got something wrong with the model, not that the world has changed," he said. "Inflation does not appear to be monetary base driven," he said.
He's not totally comfortable with what the Fed is doing, however. "Ask me whether inflation represents longer term problem, I think there's a potential there for excess reserves to create problems."
But it now seems impossible to predict.
(Excerpt) Read more at businessinsider.com ...
But GDP per person was way up. Businesses evolve, resources get allocated differently.
And this. In the US, from 1873–1879, 18,000 businesses went bankrupt, including hundreds of banks, and ten states went bankrupt
In a dynamic economy new, more efficient, businesses will replace businesses that refuse to keep up with the times. The bottom line is overall economic activity, and that was way up in the 1873 to 1880 period.
When you offshore your manufacturing base and put 11% of your workers on a FedGov™ stipend it is tough to induce inflation. The way they do easing the money ends up in stocks and NEVER makes it to the”common” man. Why is a 30 yr mort at 3.5% still? In this climate a 30 yr note should only be 2% or less.
A 30 year Treasury yields 3.80% and you think a mortgage should yield half that? LOL!
You're funny.
Confirms the Great Depression as the grandaddy of them all, by far.
Yes, as Friedman said, the Fed did it.
My professors taught that inflation leads to higher interest rates because savers demand a premium to make up for the devalued dollars they will receive at the end of the loan. But this assumes that savers have an alternative market for their money. The current situation shows that this is not always the case. How many investors do we hear complain that there is no place to put their money in today's market.
Interesting.
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