Dear Mario and Ben – monetary policy is getting tighter and tighter by the minute

On the first page of the Market Monetarist bible it says that we can observe whether monetary policy is getting tighter or looser by watching the markets. From a US perspective US monetary policy is getting tighter when the US dollar strengthens, stock prices drop, bond yields drop and commodity prices fall. Guess what folks – monetary policy is getting a lot tighter today!

Is this what we need?

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  1. Even krugman inferred as much, although, as usual, he had fiscal stimulus in his mind:
    “But if you read the Bloomberg piece carefully, what it actually says is that market players fear that the absence of a debt deal means no stimulus. So the actual fear is not that spending won’t be cut enough, it is that it will be cut too much — which actually makes sense, and is consistent with the action in stock and bond markets”.

  2. Marcus, unfortunately especially European policy makers are not that insightful. Of course neither Christina Romer or Paul Krugman is right about the need for fiscal easing, but fiscal tightening will certainly not save the world. We both know that what we need is the proper monetary policies. Unfortunately we are a small minority.

  3. Benjamin Cole

     /  November 22, 2011

    Sure, didn’t you see that the CPI, PPI and unit labor costs (USA) all went down in their latest readings?

    Now central bankers can go in for the the kill and smite inflation forever!

    This is a gold opportunity to imitate Japan and be rid of inflation forever. Prosperity can wait. For a few decades.


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