Tuesday, April 08, 2008

Gold Standard

Frankly, I cannot tell if Donald Luskin is arguing in favor of the gold standard or using the price of gold as an indicator of inflation or deflation:
"What failed him was his own abandonment of the gold standard, precisely when it was giving him just the guidance he needed"
If it is the latter, then I would need to see evidence of a correlation beyond anecdotes. Preferably, it would be a leading indicator, not lagging.

That aside, I would argue that the Fed needs to be interest rate neutral most of the time and let bubbles deflate on their own. I think we have seen one bubble created after another while the Fed chases a soft landing. This housing bubble needs to deflate and quickly. Let it.


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