My God, there’s intelligent life in The House.
I’m talking about H.R. 4180, which you can find on http://thomas.loc.gov/home/thomas.php or your favorite other site (sorry, no direct link as Thomas has a hissy with that.)
I have been pointing out for the last five years, since I started writing The Ticker, that asset price inflation is in fact inflation and that due to the monetary system we have (along with all other modern economies) that issue money as debt instruments you can measure actual monetary inflation trivially because we track all debt instruments.
That is, one need only look at the Fed Z1 to find out how much “moneyness” is in the system. One need look at the GDP statistics to determine the total value of all goods and services sold in the United States.
Since MV = PQ by definition it is thus trivially easy to determine the degree of monetary inflation, that is, the rate at which the expansion of “money” exceeds that of aggregate production.
Here it is:
Note that The Fed claims to have an “excellent record” on price stability. But inflation is not all consumer prices — it is all prices — and asset prices are prices. The Fed just intentionally ignores that little issue.
If you though the early 1980s were bad on inflation you’re delusional — you’ve been screwed, blued and tattooed with much-worse inflation for the last 20 years. It just came in places you thought you liked — such as your house. The problem is that all inflation is in fact debasement of purchasing power and it’s all bad, not good, in the end. When it shows up in assets the negative side is deferred but not avoided.
By the way, you’ve seen the same chart in a slightly different form a lot in the Ticker; it’s found here:
Here’s the problem — nobody in their right mind will make those sorts of loans — that is, credit expansion — on a sound basis. There is no set of assets to pledge against said expansion. By definition such an expansion is fraudulent and is functionally equivalent in the economy as counterfeiting of the nation’s currency.
Instead of resolving the problem by forcing those who had issued fraudulent credit in the 1990s to eat their bad loans we instead blew another bubble, this time in housing, with even bigger and more-fraudulent loans. And when that blew up in 2007 and 2008 we then “decided” to have the federal government take on more and more debt to prevent the debt bubble from deflating, transferring the fraudulent credit from the private sector where it should have remained and been allowed to blow up the issuers and takers of said bogus loans to the government’s balance sheet where the taxpayer became directly liable for same.
So now we have HR 4180, which has a nice passel of co-sponsors incidentally (31 at last count) which says, among other things:
The Congress finds the following:
(1) Monetary policy can only affect the level of employment in the short term because nonmonetary factors determine the level of employment in the long term. At best, the Federal Reserve may temporarily increase the level of employment through monetary policy, but such efforts risk the possibility of price inflation and increased business cycle volatility in the future. However, the Federal Reserve can achieve price stability in the long term through monetary policy. Price stability is desirable because both price inflation and price deflation damage the U.S. economy. Therefore, to maximize long-term economic growth and achieve the highest sustainable level of real output and employment, price stability should be the objective of monetary policy.
(2) Countries whose central bank has a single mandate for price stability generally have a better record of achieving stable prices than countries whose central bank has a mandate that gives equal weight to other objectives such as maximum employment or low interest rates.
(3) In general, an overly accommodative monetary policy inflates both asset prices and prices for goods and services. However, an overly accommodative monetary policy may sometimes cause a misallocation of capital that inflates asset prices disproportionately, creating unsustainable bubbles in asset prices, while prices indices for goods and services do not register significant price inflation. When asset bubbles burst, many investments must be liquidated at considerable cost to the U.S. economy in terms of lower real output and employment.
(4) Price stability cannot always be measured solely through price indices for goods and services since such indices exclude changes in asset prices.Therefore, the Federal Reserve should monitor (A) the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, gold and other commodities, corporate bonds, U.S. Government bonds, State and local government bonds, and other securities), (B) the value of the U.S. dollar relative to other currencies, and (C) the value of the United States dollar relative to gold, as metrics to determine whether the Federal Reserve’s monetary policy is consistent with long-term price stability.
I’ll only disagree with one point — Gold is not a separate asset class as it is a commodity. Therefore, there is no reason to separate it out and in fact doing so is an error.
But other than that, yep.
The bill then goes on to mandate the inclusion of asset prices in the Fed’s definition of “stable prices” and formally establish and disseminate in semi-annual testimony to Congress the means by which compliance with the mandate is being monitored and its success.
There’s more to like in this bill, but that’s plenty to start your Tuesday reading assignment.
And once you’ve done so, get on the horn and insist that your Representative co-sponsor and demand passage of this legislation.
Oh, incidentally, one name not on the list of co-sponsors is Ron Paul, and none of the candidates for President, including the one who claims to be a Libertarian, Gary Johnson, has come out in support of this.
Gee, I wonder why not? Might it be because he’s nearly $200 large in the hole in his campaign against $11k in cash, a loan that no bankster in his right mind would make to a campaign with no assets behind the loan on other than outrageously-usurious terms were it not for the ability to counterfeit the nation’s currency?
PS: Thank you Kevin Brady (R-TX 8)
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