Thursday, December 15, 2016

A Monetary Phenomenon?

I am conflicted.

Economist Milton Freidman famously said, "inflation is always and everywhere a monetary phenomenon."

The U.S. stock markets are supposedly going up on the promise of Trumpian inflation, aka fiscal stimulus with borrowing. Bonds are selling in anticipation. The Federal Reserve board raised short term rates. So the U.S. Dollar continues its rise to the sky.

Inflation is not consistent with a strong currency. If the U.S. Dollar is strong and remains strong then by definition the currencies of other nations are weak. They will get the inflation from weak currencies. They will get the benefits of higher food prices and higher fuel prices. (LOL) They will get the benefit of unrest and riots. Isn't this how the Arab spring started? Wasn't it high prices that raised interest rates in 2007? And the U.S. will have a leader not anticipated to be a humanitarian.

I am baffled as to how higher interest rates will help housing. I am baffled how a strong dollar will encourage exports and lead to domestic manufacturing.

I can see why other governments might have to raise their own interest rates to stop domestic inflation. I do not see how this helps economic growth.

I do not see how the piles of debt in U.S. Dollars are easier to pay off with a strong dollar.

Yet the bankers and stock touts are giddy with anticipation of future profits.



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