Interesting you posted the Mish piece. I almost put a link to it in the comments to one of your posts last week.

I am having a very hard time wrapping my mind around the implications of that piece. I suspect I am not alone. There seems a lot of arm-chair Fed Governoring going around the blogoshpere on this topic and very little of it I find compelling. Any posts you could offer clarifying the topic would be very much appreciated.

For starters if I may, what I think Mish’s piece is saying is that the Fed is trying to stop a credit induced deflation with a lowering of interest rates, yet by being careful not to grow money supply, they presumably hope to avert inflation as a side-effect. Is that correct?

Countering that is the opinion expressed by some here that once a credit bubble’s formed, deflation cannot be averted when it pops. Thus the Fed is bound to induce inflation as they keep pushing on a rope as it were. And that’s why the dollar has been sinking. (Or is dollar depreciation a red-herring and simply an artifact of our current account defecit?) But how do we get from deflation to inflation, or is it from inflation to deflation? This is where my head starts to hurt.

Finally, fwiw, my take away from an investment perspective is that if one believes the Mish argument, then keep in shortish/intermediate bonds and a few select stocks as the dollar devaluing and inflating that is inevitable will keep the stock market juiced in the short-term. Short-term being a few months, perhaps going into the election cycle, but maybe less. If that is the wrong strategy for dealing with the monetary policy described by Mish et al, please offer corrections.

Best,
-Allan

There are limits to what any one man can do to preserve the Constitution. Without a supportive Congress or court system, the Constitution will continue its slow death. Why? Because a large enough fraction of the American people don’t care any more, and are willing to give up freedom for seeming security. There is a bigger cultural problem around our political problems that politics cannot solve.

This is not a politics blog, largely because my views are nonstandard, and would not get a lot of credence.

As for sound money, I am all for it, but even gold standards get compromised, usually by the governments that benefited from them at one point. Sound money is easy to propose, but hard to maintain.

Anyway, I also wanted to delve for a second into
a taboo area – Ron Paul. You suggest that though you might like him, you may not vote for him. Is there another candidate who you feel would better represent our interests in the pursuit of sound money? I guess I just assumed that you would support his candidacy and was surprised to see that you might not.

Keep plugging away at tbe Funky Fed,

Jason