Quote of the Day: No, Dr Brash, inflation targeting has not "worked well." Not ever. [Updated]

"The financial-market crisis is not over but has grown into a vicious sovereign-debt crisis. Nevertheless, monetary policy makers of the major economies go on to practice the same sort of policy that has led to the crisis. Following the model of inflation targeting, they continue to disregard the quantity of money and the amount and kind of credit creation. As they did before, central bankers cut interest rates as low as they can. Few seem to remember that the monetary-policy concept of inflation targeting was adopted with the promise that low and stable inflation rates would produce financial and economic stability. Reality has not confirmed this assurance. On the contrary, inflation targeting was instrumental in bringing about the current financial crisis...."

             - Antony P. Mueller, "Inflation Targeting Hits the Wall"

 

UPDATE: Ref: Don Brash saying on Radio New Zealand yesterday that targeting price inflation by manipulating interest rates has “worked very well.”  A policy about which he suggested on Facebook “there really aren't any longer any serious critics.”

All this while, as Mr Mueller says,

it has become a rule to ignore the expansion of monetary aggregates and to install extremely low interest rates. Inflation targeting has led monetary authorities to ignore not only money and credit growth but also asset prices along with other variables such as the exchange rate. By the rationale of inflation targeting, monetary policy has become blunt and ignorant by design, and in this respect a repetition of an earlier failure has occurred just at a time when the future head of the Federal Reserve felt sure that he could promise that "we won't do it again" and let the US economy fall into depression. Not different from other areas of policies, in monetary policy, too, the only lessons that are learned from history are the wrong lessons.

It is unfortunately all too true what Mr Mueller concludes:

As was revealed by the recent release of the transcripts of the meetings of the Fed in 2006, central banking is a fraudulent institution where the men at the top act like deliberate ignoramuses.