“Why is general inflation falling? Globalisation is driving prices lower
and will continue to do so. We have wasted that “bonus” by leveraging up
and allocating that surplus into housing.”

That doesn’t make any sense to me. “General inflation” should be set by expectations of inflation, while globalisation should and any overinvestment in housing will separately change the relative prices of goods and services and housing – they are separate issues. Any chance you could explain the link to me – as I see no direct link, any movement must be due to some third factor.

General inflation has been falling in recent years because central banks haven’t been doing enough to try and meet their inflation mandate.

“You can apologise for the RB and their fellow travelers and say they have done their job as mandated but really they have failed badly in their financial stability role. ”

Huh? We didn’t have a large bank fail, and were forced to introduce deposit insurance for finance companies only because wholesale markets froze globally. The collapse of finance companies wasn’t a “systemic” episode – it happened before our recession, not after. I can understand critiquing the Fed, but attacking the RBNZ on financial stability doesn’t hold much water.

“As for QE, don’t get me started but some of the stuff in the media this week has been well off the mark!! The problem there is that Russel didn’t really understand it either, otherwise he would have been able to defend his “proposal” more robustly.”

I’m not sure he had thought through what his proposal was – it was a solution in need of a problem 😉

Why is general inflation falling? Globalisation is driving prices lower and will continue to do so. We have wasted that “bonus” by leveraging up and allocating that surplus into housing. The central banks have been watching their CPI and RPI whilst the credit aggregates have gone boom! It’s a bit like watching the 5.40 from Ellerslie whilst the Melbourne Cup is on.

You can apologise for the RB and their fellow travelers and say they have done their job as mandated but really they have failed badly in their financial stability role.

As for QE, don’t get me started but some of the stuff in the media this week has been well off the mark!! The problem there is that Russel didn’t really understand it either, otherwise he would have been able to defend his “proposal” more robustly.

Melisandre?

“The point I was trying to make in that post is that virtually everyone
who’s laughing at Russel Norman’s ridiculous policy to print new money
is at the same time apologists for a system in which new money is
instead just borrowed into existence, with all the problems of malinvestment and counterfeit capital that produces.”

Indeed, I think you are consistent – and I think many of the people who were most virulent towards Norman may have not had a fully consistent view. Here why I had tried to flesh it out a bit more when I discussed QE on the blog.

I appreciate you replying to my comments when you’re in a rush as well – I will have a read over it when I get a chance 🙂

Here’s my short responses to your four points, since like you I’m pushed for time now. (Yes, “short” means links and quotes I’m afraid.)

1) The central bank’s phony focus on “price stability” gives a dangerously overwhelming sense that as long as prices as measured by the CPI are relatively stable, then all will be well. As you note yourself, the poolicy amounts at a minimum to to steady devaluation, but it’s worse than that. This policy of price stability always leads to more instability.

This is especially the case when falls in prices of some goods, such as cheaper imports from China, help to mask what’s happening with other prices. As M.A. Abrams argued many years ago,

In an economically progressive community (that is, one where the real costs

unemployed as a result of the transition.

2) “…with individuals choosing to buy property M3 growth doesn’t seem like the cause here – so much as it is the SYMPTOM!” Yes, it is one symptom. Exactly.

3) Q: Why is it the relative price of housing … not general inflation … that is rising? A: That’s the nature of bubbles–they generally begin in an area that has some reason for rising prices (that truth goes right back to the Tulipmania of the seventeenth century), then once risen those rising prices begin to take on a life of their own own once all that counterfeit capital gets involved.

4) See above for one reason.ie., land and building prices would be **relatively** high in any case, and since none of those reasons have gone away, they continue to be. But the real critique here is not just one of inflation. It’s really about continuing malinvestment, of which these things are but symptoms.

Let me leave you with a quote from Hayek about the illusions of central-bank created “price stability,” made at a somewhat similar time in the cycle of the Great Depression to where we are now:

“…[price] stabilisers … believed that nothing was wrong with the boom and that it might last indefinitely because prices did not rise… [F]or the last six or eight years, monetary policy all over the world has followed the advice of the stabilisers. It is high time that their influence, which has already done harm enough, should be overthrown.” (Hayek, Monetary Theory and the Trade Cycle, 1933)

Nice I hadn’t heard that. What is with the bannanas though – does it have something to do with Hirschman (I’ve just started his biography).

The Cowen critique looms: sure, the government can artificially reduce the price of bananas. But only YOU can decide to put so many of them on your roof that your house falls over. Yeah, you wouldn’t have done it if they weren’t paying you to take bananas. But who made you stick ’em on the roof? Huh?