Over at Steve Keen’s website, there is an article up about investment advice in the current environment. The point seems to be that because most advisors are operating with a flawed economic model, they end up offering bad advice. The most egregious mistakes stem from the belief that the various rounds of quantitative easing will lead to inflation and higher interest rates. One example cited (and it seems to get a lot of attention from all shades of Keynesian economist) is that of Bill Gross and PIMCO calling for a short of treasuries last year. The condemnation is for using the loanable funds theory, and assuming that the simple act of increasing base money will lead to inflation through the multiplier effect.
To a certain extent, in the universe where I still think economic theory is moderately interesting (and my interest has definitely been dwindling, even as I know that an understanding is useful for forecasting the inevitable mistakes of central planners), the Post Keynesians are probably right about endogenous money. Nevertheless, and I am repeating myself here, there is an inherent oversight in their model of how easy money facilitates speculation – and easy money is very much a consequence of Fed policy and having an automatic backstop in place for the financial sector. So, again, even though there is some merit to the explanation that they offer, I still think that they defer to a solution which leads to the same problematic outcomes (albeit only eventually and maybe not immediately).
As to the specific question of interest rates, even if treasuries stay where they are (or go higher), there really is no saving the dollar. Remember, these guys think deflation is the dirty word, and are incredibly dismissive of the risks of inflation. So, at the first signs of “trouble” (and they already seem to be here), the reaction will be to print a lot more dollars, euros, etc. All the while, keep in mind: while there has not been any strong empirical proof of inflation in the official numbers, the expected deflation that should have come with deleveraging has actually amounted to enough inflation to practically meet the Fed’s mandate (and I think that amount is understated, as it is). So, maybe inflation has not been out of control, but the steps taken sure have had an impact consistent with the belief that Fed policies will prove harmful to your savings and future standard of living.
