Central Banking

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.

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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.

The collapse in oil should make the Fed more dovish, not less

There has been a lot of talk surrounding the collapse of oil prices. On one side are the optimists who focus on the income transfers to consumers. On the other are the bears who insist that the ongoing oil shock is symptomatic of a weakening global economy. Both camps have portrayed themselves as contrarian, with Gavyn Davies of the Financial Times going so far as to say that gloominess is always more popular than bullishness. The good people at Federal Reserve, salivating at the prospect of higher disposable incomes, seem to disagree.

Let’s start with an important point: we need to abandon the notion that the world is now more productive as a result of collapsing oil prices.