Re: [Fwd: Interest Rates, Inflation, Exchange Rates and Credit in BullAnd Bear Markets]

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

On Fri, 1 Dec 2000, Henry C.K. Liu wrote:
> Randy Wray may not qualify as astute in your book, but he does
> in mine.

Randy's views are generally reasonable at their core.
Therefore, since the view you suggest
is not reasonable, I doubt you will get agreement
with it from Randy. (Once you figure out what
he really means.)

> He wrote me: "Production starts with money to end up with
> net money. This is why high interest rates MUST be associated with
> inflation in the long run.

No one denies the association.
Your statement was quite different:
it asserted causality.

> I don't understand what you are saying.  There is no inflation
> situation in this country at this moment.  If you are suggesting
> that a 5% Fed Funds Rate is inflationary today, you are in the
> minority.

I'm simply asking you to conduct a thought experiment
where the numbers are extreme enough to make it
absolutely clear that causality cannot run in the
direction you suggested. (Or more precisely, in the
direction that you falsely asserted many economists
to believe it to run.) I am not referring to any
specific economy, and I am not making a statement
about current US monetary policy.

Cheers,
Alan