Ace Carpe Diem blogger Mark Perry of the University of Michigan business school has some really interesting charts and analyses showing the link between M1 and inflation.
Perry argues that M1 has been basically flat for three years now. As a result, future inflation is heading lower, not higher. It’s an old fashioned, Milton Friedman type monetarist argument.
Incidentally, Caroline Baum also has a Bloomberg column highlighting the European Central Bank’s monetarism. All this stands in stark contrast to the WSJ editorial this morning, “Money Illusions.”
So the inflation debate continues.
I believe that a very slow 2 percent monetary base growth, along with an inverted Treasury yield curve, and a 3 month T-bill rate that is over a hundred basis points underneath the 4.25 fed funds rate all indicate tight money from the Fed. This is essentially Art Laffer’s view as well.
But I must confess, I do wish gold were $300 dollars lower.