Inflation (Economics); European Sovereign Debt Crisis (2010- ); Banking and Financial Institutions
I know all you young
whippersnappers don’t remember ancient history, but a long time ago, in a
galaxy far, far away — well, actually, in 2011, and right here on
planet Earth — oil and other commodity prices were rising, not falling.
As a result, headline inflation was running fairly high. Some of us
argued that core inflation was a much better guide to monetary policy,
and the Fed agreed; but inflationistas were going wild, and in Europe
the ECB decided, disastrously, to raise interest rates.
So now that oil is
plunging, the same people who saw rising oil as a reason to raise rates
should see falling oil as a reason for expansionary policy, right?
Why, no. They’re
telling us not to pay attention to low headline inflation, which they
say is just oil (although it isn’t), and anyway, falling oil prices
are a stimulus.
So when oil is going up, it’s a reason to tighten policy, and when it’s going down, it’s a reason not to loosen policy.
And people wonder why I talk about sadomonetarism."
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