Stale talk, mostly.

The Coming Dollar Crisis? - As is often the case, the most interesting things I learned at last August's round of conferences came not in the formal conference sessions but in the informal small-group conversations before, around, in the interstices of, and after the conference. Take the Federal Reserve Bank of Kansas City's "Greenspan Era" conference. It was held in Jackson Hole, at the Jackson Lake Lodge in Grand Teton National Park, in the shadow of the Grand Tetons, which are perhaps the most impressive mountain range in North America. ("Perhaps" because the Canadian central bankers present pointed out the Canadian Rockies from Lake Louise... [Brad DeLong]

We have been experiencing runaway inflation already. It is just that has taken the form of asset inflation and the speculative valuations have been sold as indicators of wealth, as if it represented some real tangible aggregate improvement rather than just an accelerated decrease in the relative earning power of labor.

The asset inflation game has sort of topped out at some new unsustainable peak. Instead, we now have hedge funds to play one speculative valued asset off against another speculative valued asset. Yet, as the hedge fund game is designed, it merely transfers risk from one party to another in a zero-sum shuffle. But the hedge fund game adds a new twist in that where an investor could take a position (long or short) on X and Y and maintain a certain amount of cash in reserves and such that correspond to the volatility and risk of each independently they can simply escape huge amounts of "reserves" (to borrow a banking term that might typically match a portfolio of home mortgages) because they claim that the risks for X offset the risks of Y. Cute huh? No (or significantly reduced) reserves are needed because of a tweak in definitions. This lower reserve requirement for these modern financial entities or investments act as the new comparative advantage that favors big-big and risky-risky gamesmanship where there is still a zero-sum game between the hedge-funders and the lowly little retirement saver.

(I need to check for spelling and such . . . but it is late . . )