For the last two weeks in my regular Thoughts from the Frontlines, we have been looking at inflation. In keeping with that theme, we turn to today's note from Stephen Roach, Chief Economist of Morgan Stanley, who talks about the nature of what he calls the New Inflation. I think this is one of the more important insights Roach has had among a career with many of them. We close with a few paragraphs on Alan Greenspan from Martin Wolf, who writes for the Financial Times in the US version of the London business daily. Wolf is a jewel of a writer and makes a subscription to the FT worth it all by himself. The Financial Times is now delivered daily in many cities. You can find out more by going to http://news.ft.com/home/us.
These two articles offer us different views of the inflation, asset targeting and the critical role of central banks. They do help us think Outside the Box.
And I should note, I have been writing for some time that I thought Bush would nominate Ben Bernanke as the new Chairman of the Federal Reserve Bank. Now, we will see a lot of people critical of nominating a man who talked about dropping money from helicopters, but let me suggest to critics that they go back and really read that speech and some of his more recent ones. He did not really propose dropping money. It was tongue in cheek.
Bernanke writes and speaks in very clear terms, and I hope this fosters an era of a more transparent Fed. Which, I should note, Bernanke has argued for. I hope he does not adopt of policy speaking in opaque terms such that non one understands what he is really saying. I think a more open, transparent, collegial Fed board, with a very defined mission, would be good for the markets, rather than the guessing we all have to do now.
John Mauldin, Editor
Outside the Box
The New Inflation
We've learned a lot about inflation in the past 35 years. From the double-digit price increases of the 1970s to a close brush with deflation in 2003, the inflation saga has gone through a remarkable transformation. The interplay between globalization and new IT-enabled technologies changes the very context of the inflation debate. Financial markets and central banks need to update their perceptions of the New…