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Inflation-Targeting -- More Monetary Manipulation and Unending Inflation

January 16, 2009

The monetary central planners never stop thinking of new gimmics to manipulate the money supply, price inflation and interest rates.

Ben Bernanke has long been an advocate of what is called "Inflation-Targeting." The Fed would explicitly set a desired rate of price inflation and manipulate the money supply to hit the target.

See my new piece, "Inflation Targeting by the Fed Means Unending Inflation as Far as the Eye Can See."

The usual number suggested is a rate of 2 percent price inflation has measured by the Consumer Price Index (CPI). What this means is that the Fed would officially and publicly set a desired rate of continuous currency depreciation.

Even a 2 percent rate of price inflation as measure by the CPI means that in only 20 years prices will have gone up in general by 51 percent. And at the same time, the purchasing power of the dollar will have declined by 43 percent during these two decades.

Why build in a desire rate of price inflation? To permanently prevent any price deflation from every occurring. That is, the Fed Chairman defines any decline in prices as a "bad" that must be prevented at all costs.

This means, of course, that the American citizenry would be prevented from any real increase in purchasing power resulting from productivity and output increases that would normally register as more and better goods available as lower prices.

This is merely a variation on the same theme that Hayek and Mises criticized in the 1920s and 1930s, when the monetary central planners of that time tried to manipulate the money supply to stabilze the "price level."

Or course, Bernanke and others like him do not want the central bank to simply go on some type of price inflation-targeted "automatic pilot." Oh, no, Bernanke wants the Fed to retain the same type of discretionary policy options to manipulate inflation rates and interest rates that have helped generated the current economic crisis.

As long as there is paper money, central banks, and monetary central planners we will never be free of the plague of booms and busts, and the distorting harm that always come in their wake.

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