How to Export Inflation

The economic concept of currency exchange rates and it's economic cousin, importing inflation/deflation, have been difficult to grasp. Here is a link to a Caroline Baum article on Bloomberg that goes a long way to clearing the fog. Here are a couple of salient points that helped a lot.

"First, let’s define inflation so we’re all on the same page. Inflation is, depending on one’s orientation, too much money chasing too few goods and services or, in the extreme case favored by Austrian economists, an increase in the money supply. In other words, money is key.
The Fed can print dollars, and those dollars may very well find their way into global commodities prices, emerging debt and equity markets or country-specific goods. That’s not inflation. No matter how many dollars the Fed prints, it cannot affect another country’s inflation unless that country is complicit in increasing its own money supply to prevent its currency from appreciating.
China is making a choice to import inflation. (Actually, in pegging the yuan to the dollar, the PBOC is choosing to cede control over its domestic monetary policy to the Federal Reserve. Inflation is the result.)"

"Sovereign nations need sovereign monetary policies. The European Central Bank is learning just how hard it is to fashion a one-size-fits-all short-term interest rate for 17 very different countries.
No single central bank can play that role for the world (gold standard bearers, hold your fire), just as no central bank can export inflation without a willing importer on the other side."

Keynesiasm Is not Popular With Everyone

Keynesiasm is taking a hit in the article Caroline Baum wrote on Bloomberg yesterday, "Obama’s Pyramid Schemes Would Make Keynes Happy". She writes about her belief that government created jobs are temporary jobs that do not add permanent jobs into the economy. Complete reliance on government policies is a Keynesian prescription, and she is not in agreement. Read her short article for more depth of the argument that is about why we use Keynes' theory when there are others.