June 28, 2003

Kudlow says the US economy needs more money (again)

As usual, Larry Kudlow asks for more monetary pumping by the Fed:

This current rate of liquidity expansion is inadequate - and it may help to explain recent slumps in the price of gold, the most liquidity-sensitive market indicator. Gold has slumped to $344 today from $380 a few months ago. Industrial metals have also stalled in commodity land.

Transaction demands in a rising economy, including powerful new investment tax incentives from Washington and a new spate of Wall Street deal-making activity in software, biotech, entertainment media, and financials, must be fully accommodated by the Fed. But in the last month, base money created by the Fed has inexplicably flattened out - exactly the opposite of what one might expect from a deflation-fighting central bank.

The NRO Economics editor apparently believes a loose monetary policy (which was at the root of the artificial boom that lead to the following bust) can solve all economic problems...