Lacy Hunt interview

[Rubedo]

http://www.businessspectator.com.au/bs.nsf/Article/Lacy-Hunt-$pd20090129-NR997?OpenDocument

LH: The great American economist Irving Fisher who did the pioneering work in debt deflation. Milton Friedman the Nobel Laureate called Irving Fisher the greatest' economist that America ever produced'. One of the Fisher's great competitors during his lifetime was Joseph Schumpeter [an Austrian economist] who taught at Harvard. Fisher was at Yale. Schumpeter said Fisher was the brightest man that he ever met.

Fisher, who did the seminal work in debt deflation, lays out the case that once you have in a period of extreme over indebtedness and a price disturbance began, the price level or the value of the assets falls and the income generating capacity of the assets falls, that it controls all or nearly all other economic variables. That's a contrary view to what Milton Friedman said. Friedman contended that if the Fed had prevented the decline in the money supply during the Great Depression the velocity of money which is outside the Feds control would have stabilised. So would have nominal GDP and the Depression would have [been avoided]. Fisher takes a different view.

Once we've got the extreme over indebtedness, really there's nothing that we can do and one of the problems is that the velocity of money is likely to fall very sharply and although the Fed has managed to increase the money supply, velocity has dropped even more sharply and that's why nominal GDP is falling so at least in the early stages of this difference of opinion between Friedman and Fisher, Fisher appears to be correct.

IO: There's no intervention that the Fed or anyone else could do to stop that process from evolving?

LH: Well I think the Fed is doing all that it can. If you read Ben Bernanke's essays on the Great Depression it's clear that he believes that the Friedman view is correct and he is pulling out all the stops to try to contain these deflationary forces but there is a credible expert in the field that made the point that it was quite possibly at the situation that nothing meaningfully can be done other than time to correct the problem. I know no one wants to hear that but that in fact may be the situation.

[rffrydr]

Current interview on Bloomberg's "Taking Stock":

http://media.bloomberg.com/bb/avfile/Markets/Analyst_Calls/vuvrr7QuE_zo.mp3

Though I disagree with much or most of this, I miss these old guys from the 70's brought up on a heavy diet of monetarism and history. They are neither economists nor traders. And are both. Most are bugs or have bugged out somewhere along the line and talk like prospectors of old. Some, like Lacy, stay with the campaign. But there is an intelligence and perspicacity with these guys and economic thought that stands apart from undisciplined ideology that passes for commentary these days. They always see the forest for the trees and come with heavy canon.

The early 70's marked many highs for this country. And many would mark it as the beginning of our decline--as the generation before had marked the early 50's. No doubt there is an element of truth here...and there.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Fed uses cash accounting--dollar in; dollar out. Nowhere in between is a "price" imposed on its balance sheet. And that is as good as time--that in fact IS time, capitalism's weak heel.
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Today is the Tomorrow you worried about Yesterday!