Kaletsky Worries About Inflation In 2008!
Now that I’ve written my review of Anatole Kaletsky’s Capitalism 4.0, I have time to see what others have said about him in the past. I searched Forbes for “Kaletsky”and found a blog quoting an article written by Kaletsky in May of 2008: “Could oil mania be coming to an end?” Don’t you just love this opening second paragraph:
While the slowdown in Britain and Europe has only just started, the US economy now seems likely to avoid an outright recession as Washington’s huge tax cuts, interest rate reductions and bank and mortgage bailouts appear in the nick of time over the economic horizon, just like the US cavalry riding to the rescue in a classic cowboy film.
This was before Obama was elected and before Kaletsky knew the U.S. would spend trillions and before he knew it would have little effect on recovery or employment. It was also before he knew that Obama wanted to rescind those tax cuts while still in the recession.
As these measures start gaining traction we should see fewer of the panicky headlines about a return to the Great Depression…
When he writes about commodities, he suggests trend followers are just speculators and will get hurt, but doesn’t acknowledge the trend following speculators in housing. Kaletsky is worried about commodity prices:
…there is now only one key uncertainty marring the signs of improvement: the huge increase in energy, food and other commodity prices since the start of this year. This now poses a far greater danger to the world economy and financial system than the correction in US and British housing markets and the related credit losses suffered by leading banks.
Don’t you just want to laugh at such nonsense! He doesn’t see the risk in housing, but sure is worried about inflation just before prices fall off the table. When he wrote the article West Texas crude (WTIC) was about $125 per barrel and soon peaked at $147.90 in July, 2008. Six months later the price had fallen to $35 per barrel. Corn peaked with WTIC at $7.50 a bushel and by December was below $3.00. Copper peaked at $4.00+ and fell to $1.25. Gold was testing $1,000 about the time of this article then pulled back to below $700.
It seems obvious that Kaletsky regards Gold as just another one of the commodities and I suspect if he’d known the depth of the coming recession and how we did start to invoke the Great Depression, he would have trouble justifings Gold rise from $700, through $1,000 and peak over a year later at $1,200.
He writes that “Commodity inflation is worse than housing and bank deflation for three main reasons.”
- First, rising prices of food and energy hit poor people hardest and stir to action those who are politically apathetic. If I may, I think the premise is correct, Tea Party members for example, but they are really upset about housing and bank deflation brought about by government meddling.
- Secondly, inflation is inherently harder for governments and central banks to deal with than deflation. No it’s not! The FED is trying like crazy to inflate asset prices, but the deflationary tide is nullifying their efforts.
- Thirdly, the countries most exposed to the risks of commodity inflation - China, India and other large consumers of energy and food - are precisely the ones that the world economy now depends on for most of its growth. I suspect that China is most scared of deflation, a collapse of housing and a collapse of demand for their products. Unemployment is probably their biggest concern.
- To make matters worse, the political pressures caused by energy and food inflation in developing countries is provoking panic reactions such as trade restrictions, price controls and credit rationing schemes that now seriously threaten the progress towards global market liberalisation and will almost certainly make commodity shortages even worse in the long term. This I just don’t believe. I think a collapse in currencies and deflation might cause more panic.
The problem with elitists, economists and even pundits like me, is that we try to tell you what is bad and good and warn about events, but most of don’t know anything beyond our little existence. It is arrogant to try to manage an economy as large and as complicated as ours were at home. It’s hubris to try to manage the global market.
