Monday, April 28, 2008

moral capital, part one

Today's Wall Street Journal ran an interesting Op-Ed piece about the Fed and its loose-money tonic. Personally, it isn't often that I feel sufficiently qualified to disagree with a Fed chairman but I will confess to an occasional doubt about Mr. Bernanke, and the Journal piece made a good case.

Alongside the editorial was this graphic showing the price of oil in Euros and in Dollars. It is very telling, because it illustrates clearly the effect of the falling Dollar on the price of oil. To wit: the commentary reads, "And it means that had the dollar merely retained the same purchasing power as the euro, today's price of oil would be below $70 a barrel." I think it's worth a little emphasis.

The editorial hashes again the debate about using "core inflation" as a measure of inflation for monetary policy purposes, and argues against it. Indeed, even a schlep like me has been known to point to a Dow or Gold or Crude ticker, back on the floor, and say, "there's your inflation!" when engaged in a discussion with traders about how high gold was going to go this time. Now, I can point to this graphic. That's handy because I'm not on the floor anymore.

But the title of this thread is going to take us down a path that will likely be a unexpected to some. We began with a discussion about easy money. Look what it does! In addition to a short litany of its attendent evils ("Inflation is the thief of the thrifty middle class"), the editorial cites one obvious consequence: "The housing bubble was a societal mania brought on by the Fed's subsidy for credit, and no one wanted it to end."

That last bit got me thinking. Easy money makes the weak weaker. And what's more, there's a moral parallel: easy morals make manias, too.
the materials posted here were freebies on the WSJ Online site.


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