and inflation is not a price phenomenon as Krugman has realized
Personal savings, U.S. Bureau of Economic Analysis
Release: Personal Income and Outlays fell from 2021-03-01 $5732.7 to 2022-11-01 $461.2
How much dis-savings is left?
The Consumption of durable goods prices peaked at the same time long-term monetary flows peaked:
re: "Until the mid-1960s, NGDP was on a stable growth path"
The Great Inflation of 1966-81 was due to a monetary policy blunder. The Federal Reserve (BOG), under Chairman William McChesney Martin Jr., re-established WWII stair-step case functioning (and cascading), interest rate pegs thereby using a price mechanism (like President Gerald Ford’s: “Whip Inflation Now”), and abandoning the FOMC’s net free, or net borrowed, reserve targeting position approach (quasi-monetarism), in favor of the Federal Funds “bracket racket” in 1965 (presumably acting in accordance with the last directive of the FOMC, which set a range of rates as guides for open market policy actions).
The effect of tying open market policy to a repurchase agreement (or some policy peg, e.g., today’s remuneration rate on IBDDs) was to supply additional (and excessive) complicit reserves to the banking system whenever loan/investment demand (i.e., bank deposits), are increased.
Since the member banks had no excess reserves of significance, the banks had to acquire additional reserves to support the expansion of deposits, resulting from their loan expansion. If they used the Fed Funds bracket (which was typical), the rate was bid up & the Fed responded by putting though buy orders, reserves were increased, & soon a multiple volume of money was created on the basis of any given increase in legal reserves.
This combined with the rapidly increasing transaction velocity of demand deposits resulted in a further upward pressure on prices. This is the process by which the Fed financed the rampant real-estate speculation that characterized the 70's, et. al.
Hope you had a nice holiday! Happy New Year!
How, if at all, do these concepts fit into your model?
1. Trend NGDP on some stable path vs. trend debt/GDP on a one-way track to Japanese levels.
2. The effect of now (or soon to be) seriously positive real rates on debt service ratios?
3. The notion that stability in the real economy and stability in the financial economy cannot be achieved with a single monetary policy.
Nice post. Fingers crossed you are right.
Except in the UK the striking public sector/quasi-public sector workers aren't happy to hear the meme "the inflation we´ve had was good!".
And if the government gives in to them then monetary policy will have to be tightened to offset the excessively loose fiscal policy or we'll have another Truss/Kwarteng market meltdown.
Not envious of our government, whatever the colour!
One thing is hilarious:
See: "Pay close attention to Chart #2, since you're unlikely to see anything like it elsewhere. To begin with, it's plotted using a logarithmic y-axis, which means that straight lines are equivalent to constant rates of growth. The dotted green line represents the annual growth trend which started in 1966 and persisted through 2007: 3.1% per year. That is, over this 56-year period the economy managed to grow by an annualized rate of 3.1%. Sometimes by more, sometimes by less, but over time it always came back to this trend line. The dotted red line shows the growth trend in place since mid-2009: 2.2%. Something happened during the Great Financial Recession of 2008-09 to put a permanent damper on growth, and it's not just demographics—demographics don't change dramatically from one year to the next."
re: "monetary policy pins down the price level or the rate of inflation and, therefore, expectations of the rate of inflation."
Can't get any more subjective than "expectations", behavioral economics.