We told you so...

A few years ago.

And if anyone thinks the Fed isn't targeting the money supply by manipulating overnight interest rates...well...they're just naive.

As did Milton Friedman.

That is a question not of basic principle, but of technique. When they so-called 'target the interest rate', what they're doing is controlling the money supply via the interest rate. The interest rate is only an intermediary instrument.

Now, the Wall Street Journal says that, yes, inflation is always and everywhere, a monetary phenomenon:

Of all the legacies left behind by Nobel Prize-winning economist Milton Friedman, who died last week in San Francisco at age 94, the idea that central banks should focus on money supply to manage inflation is one that largely fell out of fashion years ago. Now, though, some policy makers in Europe are taking a second look.

....But while many central bankers still believe his dictum, few, including those at the Fed, allow their policy to be guided by a target for money-supply growth. That's because the quantity of money in the economy -- which, depending on the definition, can include currency in circulation, commercial-bank reserves at the central bank, bank deposits and money-market mutual funds -- is hard to measure, and its relationship to overall spending, which tends to drive prices up or down, often shifts.

European central banks acknowledge the data can be tough to decipher. As money-supply growth rates rise, however, the European Central Bank, the Bank of England and Sweden's Riksbank all have cited the data as a factor in their decisions to raise interest rates lately.

....The ECB, which sets monetary policy for the 12 nations that share the euro, has kept the monetarist faith throughout, maintaining a target for money growth since the euro's launch in 1999. Hoping to infuse the fledgling currency with credibility, the ECB borrowed a page from the Bundesbank, the German central bank that kept prices steady for several decades before the euro's introduction.

The ECB's president, Jean-Claude Trichet, providing a rare peek at how money-supply numbers affect the bank's decision making, revealed this fall that strong money growth prompted the ECB to start raising rates last December. At the time, other economic signals were mixed and international organizations, such as the International Monetary Fund, advised holding steady. "In retrospect, money turned out to be a good trigger, which put them ahead of the curve," says Thomas Mayer, chief European economist for Deutsche Bank in London.