Currency Debasement

On Nov. 15, 2010, a who's who of conservative economists, investors and Niall Ferguson warned that the Federal Reserve's second round of bond-buying, or QE2, "risk[ed] currency debasement and inflation." Since then, the dollar is up 6 percent against a broad index of currencies, and personal consumption expenditure inflation, the Fed's preferred measure, has soared from 1.2 to ... 1.5 percent.

Just like Weimar Germany.

Now, everybody makes mistakes. The question, though, is what you learn from them. For these inflation hawks, the answer, apparently, is nothing. Caleb Melby, Laura Marcinek, and Danielle Burger of Bloomberg News tracked down nine of the letter's 23 signers, and asked them if they still stand by it today. They all do. Although, to be fair, some of them seem to be more acquainted with empirical reality than others.

The slightly-less-aware faction thinks that the inflation monster has already come out from under their beds. "There's plenty of inflation," perennial goldbug Jim Grant says, "not at the checkout line, necessarily, but on Wall Street." Professor Geoffrey Wood agrees that "everything's panned out."

And even actual monetary policy expert John Taylor claims that "the letter said several things—the risk of inflation, employment, it would destroy financial markets, complicate the Fed's efforts to normalize monetary policy—and all have happened." One problem: They have not.

Then there's the more bashful group that concedes they haven't been right yet, but thinks they will be. Former inflation truther Niall Ferguson says their spectacularly bad prediction wasn't one per se, and that "there is in fact still a risk of currency debasement and inflation." Current inflation truther Amity Shlaes thinks that "inflation could come" despite no evidence of it. And former McCain economic adviser Douglas Holtz-Eakin protests that "they are going to generate an uptick in core inflation" and "they are going to go above 2 percent."

Above 2 percent inflation. Scary stuff.

Although it's not as frightening as what would've happened if we'd listened to these inflation hawks. To get an idea of that, just look at Europe. It raised rates twice in 2011 to quash an oil price blip, and quashed its economy instead. Unemployment is still 11.5 percent, and inflation has drifted down to 0.3 percent — lost decade territory. And now it's about to start its own mini-QE to try to save itself.

It's too late, though, for the inflation hawks to save any credibility they might have. Their insistence that they're right in defiance of all facts has debased that.