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Unformatted text preview: Roubini: 'Inflation Is Not a Problem' CNBC 11-16-2010 Despite a huge program by the Federal Reserve intended to provide monetary stimulus to the economy, Nouriel Roubini doesn't think we need to worry about inflation. In fact, he argues that people who take the position that the Fed should curtail its easing policies do not really understand inflation. In the first two parts of my interview with economist Nouriel Roubini we discussed two issues: Why Professor Roubini believes a gold standard is no longer a viable option for modern economies, and second why monetary easing is a necessary evil. So let's take a deeper look at Roubini's theory of inflation. Let's begin with what seems to be the principal conclusion of Roubini's argument. Simply put: "Inflation is not the problem." Why does he believe that to be true? The key to understanding Roubini's assertion may be best summed up in his own words: "Increasing base money is not inflationary because M0 more than doubled in the last year and a half-since QE1-but velocity has collapsed ." That sentence may seem densely packed with economic theory, but with a little explanation it's fairly straightforward to grasp. It is essentially made up of three interrelated concepts. First, let's begin by exploring the concept of M0. As you probably recall from your college economics classes, there are several measures of the U.S. money supply. M0 is the most liquid measure of money in the U.S. economy. It represents actual coins and currency notes circulating in the economy, as well as the coins and currency notes stored in bank vaults. M0 is actually quite easy to envision, because it represents the sum of physical money you can actually touch with your hands. Second , Roubini refers to ' QE1'. This of course is the first round of Quantitative Easing, which the Fed began last year. In March of 2009, in the doldrums of recession, the US Federal Reserve began injecting money into the US economy...
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- Winter '10
- Monetary Policy, Quantitative easing, Fed, Professor Roubini