Today brings us the most recent commentary from Doug Noland at The Prudent Bear website. Below is an interesting excerpt:
“For me, the primary focus on Credit always resonated. An expansion of debt – “Credit inflation” – will have consequences, although the nature of the inflationary effects can differ greatly depending on the nature of the underlying Credit expansion, the particular prevailing flow of the new purchasing power and, importantly, the structure of the real economy (domestic and global). The increase in purchasing power may or may not increase a general measure of consumer prices. It might be directed to imports and inflate trade and Current Account deficits. It may fuel investment. Or it could flow into housing and securities markets – perhaps inflating asset Bubbles.
Dr. Richebacher persuasively argued that rising consumer price inflation was the least problematic inflationary manifestation, as it could be rectified by determined (Volcker-style) monetary tightening. Presciently, Richebacher viewed asset inflation and Bubbles as the much more dangerous inflationary strain – too easily tolerated, accommodated or even propagated.
It’s no coincidence that periods of low consumer price inflation preceded the Great Depression and the bursting of the Japanese Bubble. I would further note that consumer price inflation was relatively contained prior to the bursting of the tech and mortgage finance Bubbles. But to claim this dynamic was caused by tight monetary policy is flawed thinking. It was just the opposite.”
