Bill Ralston interviewed Don Brash a couple of nights ago on the back of news that the US Federal Reserve has essentially given NZ's Reserve bank a 'letter of credit' for up to US$15 billion, apparently to help America's "liquidity trap" by distributing credit more widely to so called "emerging countries" like ours to assuage our potential inability to draw down foreign currency reserves given our rapidly falling dollar.
Ralston asked one acute question of Brash: "Where do they get these billions to spray around," to which Brash essentially replied that both the Reserve Bank and the Fed can print as much of their own currency as they wish -- "without limit" -- in other words, it's credit produced out of thin air -- but that's alright, Brash hastened to add, since "no one's worried about inflation at the moment."
He'd be wrong about that -- just as he's wrong, still, about inflation. Just as all central bankers have been for decades.
If this is nothing to worry about, then I'm a Muslim. As I've tried to explain before, the central problem the central bankers create is not price inflation, but monetary inflation -- ie., not inflation of prices so much as inflation of the money supply, which is generally the cause of price inflation, and much more else besides. The US now has negative real interest rates (don't mention the moral hazard: with government guarantees, that means you can't afford not to borrow) but the Fed chairman still continues to inflate the money supply in the blind hope that debasing the currency, diluting the pool of real savings and reducing the purchasing power of your money will, somehow, fix the problems caused by decades of the self-same approach.
From 2001 to 2004 now-disgraced Fed chairman Alan Greenspan inflated the money supply to "ease" the US economy through 9/11 and the collapse of the Dot.Com boom (see right). He added $1 trillion plus to the money supply in that period, "slashing the federal funds target from 6.5% in January 2001 down to a ridiculous 1% by June 2003." [See 'Did the Fed Cause the Housing Bubble?'] At that time, no one was worried about inflation either, but that didn't stop Greenspan's monetary pumping setting off the housing bubble, the boom and now the dramatic collapse.
And the Dot.Com boom itself was caused by the double digit growth rates of the MZM and M3 measures of money supply during the late 1990s to get them through an earlier crisis -- a crisis that was caused by a relaxation of the money supply from 1994 to get out of that crisis -- which was caused by the monetary pumping to rescue the economy from an early crisis ...
Crisis after crisis after crisis, the seeds of each of them planted in the "rescue" from the preceding crisis.
So "no one's worried" about inflation, says Brash the former central banker, except several years later when the malinvestments propped up by decades of monetary pumping finally start falling over -- and even then central bankers are too blind to see it for themselves.
No wonder central bankers still read Keynes. About the long run, they're all braindead.