Inflation - A Little Is OK :Bernanke

Discussion in 'Politics' started by pspr, Mar 15, 2012.

  1. pspr


    By Amity Shlaes
    A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

    Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

    “Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

    “Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.

    How did it happen? The Treasury spent like crazy on the war, creating money to pay for it, then pretended that its spending was offset by complex Liberty Bond sales and admonishments to citizens that they save more.


    The thing about inflation is that it accelerates. The acceleration hit storybook levels in the most sudden case of all, that of Germany in 1922. Many financial analysts thought the Weimar authorities weren’t producing enough money.

    “Tight Money in German Market: Causes of the Abnormally Rapid Currency Deflation at Year-End,” read a New York Times headline. The Germans didn’t know it, but they had already turned their money into wallpaper; the next year would see hyperinflation, when inflation races ahead at more than 50 percent a month. It moved so fast that prices changed in a single hour. Yet even as it did so, the country’s financial authorities failed to see inflation. They thought they were witnessing increased demand for money.

    The greater the denial before, the faster the inflation accelerates after. Author Daniel Yergin tells the story of a student in Freiburg who ordered a cup of coffee in a cafe; the price was 5,000 marks. Then he had another. When the bill came, it was 14,000. “If you want to save money and you want two cups of coffee, you should order them both at the same time,” he was told.


    The reason that markets haven’t jumped yet is that the last great inflation and correction happened in the late 1970s and early 1980s, just long enough ago that most adults in the financial markets don’t remember it.

    We can debate whether today’s challenge resembles that faced in the early 1980s, or something worse. But one thing is clear: pretty soon, we’ll all be in deep water.
  2. I guarantee you that if the USA had no debt whatsoever, a little inflation would NOT be ok. Inflation is only ok for people that have more debt than income.
  3. Tsing Tao

    Tsing Tao

    CPI came in under expectations today. What a fucking laugh the BLS is.
  4. Government likes to say, "Don't worry, be happy... the inflation rate is ONLY 2%"... when in fact, it's more like 8-10% for the things we regularly spend money upon... food, energy, clothing, movie tickets, hair cuts, etc.

    Lies, lies, and more LIES!
  5. pspr


    According to the author of the article, wide spread inflation is going to jump up and bite us in the butt when we least expect it as a result of the years of all the easy money.
  6. The economy has a dumbell parameter...

    On the one hand... servicing debt, overvalued/oversupply in RE, excess labor... are all deflationary forces.

    On the other hand, "money-pump", QE, et al... are inflationary.

    So far the deflationary forces have kept the inflationary forces "in check"... for how long and when does the balance shift?
  7. rew


    Such "people" as the U.S. government. Which is why we're guaranteed to get plenty of inflation.