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Anyway, that's my theory. Do you agree, or is there something i'm missing, and the Fed is actually a heluva lot smarter than they look.

I can't explain it but there must be something wrong with your reasoning. Back in the LBJ, Nixon, Ford and Carter days we had stagflation, high interest rates and high inflation. Interest rates are a lot lower now and if rates are inflationary then we should have higher inflation now, but we don't, to the contrary, now that rates are lower and so is inflation. Maybe rates are not inflationary all the time, maybe there are other things working in the economy. But since the Fed only has two tools, rates and open market operations, people pay too much attention to these two things.

All this talk about inflation seems to ignore the fact that housing happens to be in deflation just now. Computers and consumer electronics have been in deflation for 30 years. Telephony has been in deflation since Judge Green broke up AT&T. Air travel has been in deflation since the industry was deregulated. The economy is a complex machinery and concentrating on one or two of its components seems to me to be a mistake.

Denny Schlesinger
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