Wednesday, March 05, 2008

Larry, "Shock And Awe" Is The Cause Of Rising Inflation

Larry Kudlow, the CNBC host, who has repeatedly expressed support for the Fed's aggressive interest rate cuts, which he has called "Shock and Awe" monetary policy and who confidently predicted that as a result of these policies the dollar would rise and the price of gold would fall, back when gold stood at $720 per ounce and a euro costed $1.38, as compared to $992 and $1.53 now, is now getting worried about inflation.

You know inflation is bad when even Larry Kudlow expresses worry about it. He also describes one way in which inflation harms the economy, by raising the de facto taxation of capital income as capital income is taxed based on nominal gains. So, even assuming that inflation do not reduce real returns before tax, it will mean that people will have to pay taxes for capital gains which are just inflation.

He finally calls for Bernanke to be replaced by someone who cares more about inflation.

Well, so far so good. Yet Larry fails to mention just how he thinks the Fed should have acted differently and he fails to admit that it is precisely Bernanke's "Shock and Awe" policy that is responsible for the decline of the dollar and the acceleration of inflation. This is to say, he fails to admit that it is the policies he has recommended and praised which are responsible for the inflation he now worries about.


Anonymous Anonymous said...

stefan, how bad do you think this current downturn will get? i've only started reading your blog, so i apologise if you've already gone over this. my research tells me that things will get pretty bad, but i'd like to hear the opinion of somone well versed in austrian econonomics. some of the forecasts made by (non-austrian) gold bugs, who may have some investing experience but know little of economics, are downright ludicrous.

11:52 PM  
Blogger stefankarlsson said...

Well, it is difficult to say with any certainty how deep this downturn will be. But the way Bernanke just keeps making things worse, the risk is high that it will be long and deep, perhaps with a few brief upswings when politicians accelerate their inflating and spending.

6:06 PM  
Blogger Flavian said...

What do you think will happen if US inflation soars above let's say 10% per annum?

Will the Fed do what it ought to, or will they allow inflation to erode the dollar completely and could it even end up in a hyperinflation?

I get the impression that the skyrocketing of the price of gold in terms of US dollars might indicate that US inflation is getting completely out of hands.

8:00 PM  
Blogger stefankarlsson said...

Flavian, I'm not sure. I didn't think they would be crazy enough to act as they have done recently, so I am reluctant to assume that Fed officials are sane. It seems more likely that they at a such a point would revert course. But they may just decide that hyperinflation is the way to relieve the high debt burden of households and government.

9:39 PM  

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