February 26, 2007

The Fed Chairman has stated that inflation is a monetary phenomenon and that it is excess money creation that produces inflation. Furthermore, the price rule by automatically accommodating changes to money demand is rinsing inflation out of the major economies, (i.e. the EMU, the U.S., and China among others). So viewed in the context of the underlying inflation rate, and contrary to what some of our friends who focus solely on the price of gold or monetary aggregates think, the major central banks are doing a good job of keeping money creation in check.

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