I'm waiting for Bernanke to begin talking-up the inflation target. The Supply-Siders don't think he'll try it, but I do. This is America, and, when in doubt, it's better to put our policy-makers in straitjackets, because they tend to get sloppy after a while. I don't think Bernanke is going to be the dove that Greenspan was, despite his militant anti-deflation arguments. In all honesty, I share Bernanke's hatred and fear of deflation, when it's driven by the money supply, as opposed to productivity. And I would reluctantly agree with the idea that asset bubbles are better than contraction, but I think the answer is to try to keep a steady rate of inflation and avoid both to the greatest degree possible.
Interesting correlation on the inflation-money chart. Note that it's not quite one-to-one, and, in a couple of cases, not really even close. Friedman is, of course, correct that inflation is always the result of too much money being pumped in, but the reason it works in the Keynesian recession framework is because the price rise will be the result of demand picking up to too-strong a level for maximization at the given price. So businesses then raise their prices. The consumers will spend because they've got more money and no higher prices (yet).
There is a lot to talk about based solely on that graph. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
That makes M3 significant only on a medium term basis or for high inflation/money growth numbers, which is serious enough. In the long run, we're all dead. John Maynard Keynes
