Jude Wanniski
November 7, 2000


From: "Angell, Wayne (Exchange)" <wangell@* * * * *.com>
To: "'Jude Wanniski'" <>
Subject: RE: deflation


I would agree that an interest rate targeting strategy is more roundabout to achieve any gold or core commodity price index target as compared to a reserve targeting strategy.

I, again, and consistently, say that the correct price of gold consistent with price stability is different after a country has permanently adopted an automatic gold standard than that which is consistent with a transition to zero inflation as a prelude to a commodity standard.  To guess on the correct price of gold while running an inflation rate of around 2 percent runs the risk of an adjustment of the price level to be consistent with that price of gold.  I have not been willing to take the risk of the price level adjustment which would most likely have an undesirable business cycle component.  Consequently I have always preferred to use the price of gold as a monetary policy indicator along with a core commodity index and the exchange value of the dollar. 

We seem to be far apart on this issue. 

Other than in late 1986 and early 1987 when we were in agreement that the Fed was supplying liquidity at a faster rate than was consistent with price stability, it has seemed to me that you were never in accord with more monetary policy restraint which could be consistent with zero inflation.

I just do not understand your sword rattling over your being right and my quitting the engagement because I was wrong.  Jude, I correctly suggested that tight money would produce lower inflation and faster growth.  You kept suggesting that we would run into a recession.  It did not happen.

If you and I can come together for a new beginning when even I believe the Fed is too tight then we might find some common ground for exploring the direction of monetary policy going forward.  I am open to talking about the future.  I see little benefit from going over all that old ground that seems to suggest we were in different worlds.  I have been equally guilty re. the old disputes. 

What new issues for policy and suggestions of policy makers would you suggest?  I called today to open up that possibility.


-----Original Message-----
From: Jude Wanniski []
Sent: Tuesday, November 07, 2000 2:38 AM
To: wangell@* * * * *.com
Subject: deflation

Here is the index for Von Mises:

You see, Wayne, there is no point in our having these discussions when there is never any resolution. When you run out of logic, as again you did today, you must hang up on me. That's why we tried e-mail... But then you  never had time. It was simply inconvenient for you to admit on one point or another that I was right and you were wrong. We didn't have that problem when you were at the Fed and so could be the best of friends, learning from each other.

So now... after four years of watching gold decline, with all the convulsions that has meant to the world economy in general, commodity producers in particular, you have decided that $264 is too low. But you think $300 is too high. And you think the Fed will lower the funds rate in order to raise the $264 to what? $265? Except raising or lowering the funds rate will not raise or lower the gold price... That means the Fed must change its operating procedures to target gold and add liquidity until it reaches your target price... whatever it is.

Try and grapple with this issue, for as long as it takes. I'm willing to continue as long as you are. If you are afraid that in the end you will have to acknowledge errors on your part, for whatever reason, then don't bother with the exercise. It gives me a headache and surely gives you one too.

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