Wednesday, August 18, 2010

A central bank that looks forward to high inflation?

I should thank Mustapha at for drawing attention to an article published by the Ludwig von Mises Institute that praises Riad Salameh's skills as Lebanon's central banker.  Mises was the professor and mentor of my all-time hero: Friedrich von Hayek. You can imagine my excitement as I clicked on the link.  
Mustapha is a polite, glass-is-half-full kind of guy. For the positive interpretation, read his blog. I'm not an optimist (and only occasionally polite):
There is a sophomoric analysis of the Lebanese banking system that puzzlingly talks about banks reserve ratios, lending practices, as well as the debt, but where the author seems totally oblivious to the fact that much of the debt is owned by the banks!  He also seems oblivious to the fact that banks were effectively forced to buy the debt on more than one occasion at below-market rates.  
These glaring oversights aside, the author presents a startling quote from the Governor, which he suggests is prescient, though "unconventional":
"The future expectations of inflation are going to diminish the real value of [the public] debt, which is stated today at around $48 billion. And the present value or the real value of that debt will look less important in the next four or five years, as the purchasing power of currency is going to be depleted worldwide."


Is the Governor looking forward to high inflation as an exit from Lebanon's debt burden?  This is a very very strong statement. A look at the original interview in Executive Magazine shows that the quote is taken out of context.
The real revelation in all of this is that the Mises Institute, which purports to be "the world center of the ... libertarian political and social theory" has become a source of complete piffle.  I'll stick to readings from the Hayek Institute.  

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