Taking Down a Take-Down: the James Montier edition

After eight drafts of your book, an unsettling dread creeps up on you. Certain parts that once seemed genius now strike you as half-baked. Your writing is meandering and unstructured. You can spot the places where you resisted the urge to think deeply. You shove in quotes and calls to authority more than you should, all the while laughing obnoxiously at seasoned “experts”— never, ever forget the ironic quotation marks.

Why? Because, well, it feels pretty good to be a gangster.

James Montier, in his latest white paper, tries very hard to be a gangster. But he fails – miserably. I know because I’ve been there. In fact, I often go there. Even so, I know a huckster when I see one. And in his “exposé” on the “myth” of the natural rate, James Montier is nothing more than a charlatan.

Am I a hypocrite?

In my last post, I wrote that Krugman was wrong to say that the Federal Reserve has no control over the money supply. In the comments section, the astute Barney Rubble pointed out that elsewhere on the blog I stated that central banks have limited control over the money supply. His comment is here:

I think it might be necessary to clarify the apparent contradiction….As in other posts you have mentioned the FED doesn’t have so much control….”In other words, if the central bank wants to boost the money supply from £1 trillion to £2 trillion, it could do so with ease. Today, the central bank does not have this control.”

So am I a hypocrite? No – at least I don’t think I am.

The Fed Does Control The Money Supply

The bubbles foaming from Paul Krugman’s soapbox seem to have gone to his head. As Krugman now claims, the central bank is incapable of directly affecting the amount of money in the economy. All it can do is adjust the level of bank reserves. Whether these adjustments lead to changes in checking deposits is then left to fate and fortune.

He is wrong, clearly.