AEIdeas

The public policy blog of the American Enterprise Institute

Subscribe to the blog

Discussion: (4 comments)

  1. Benjamin Cole

    Inflation is deader than Jimmy Hoffa.

    Why the peevish fixation on inflation? I can’t answer that.

    In the 1970s, you had unions, a top tax rate of 91 percent, and heavily regulated telephones, transportation and banking, and huge and powerful domestic manufacturers and retailers in world of little foreign competition. And Arthur Burns, who declared defeat in the war on inflation.

    So, we had a perfect storm for inflation, and it got into the double digits. Not hyperinflation, but double digits.

    A lot has changed since then, for the better actually. We are far, far less inflation prone than then.

    The Fed has yet to adapt to the new world. They should be printing money like crazy, and monetizing federal debt to the moon.

    How often can you pay off the national debt with greenbacks and not cause inflation?

    This is a golden opportunity….

    1. Why the peevish fixation on inflation? I can’t answer that.

      Because the inflation of the money supply has created the biggest bubble in human history and the purchasing power is at risk once the bubble breaks. The fact that the Fed’s inflationary policies create a bubble in housing or treasuries does not mean that we can ignore events because oil is only $100 a barrel and copper is selling for $3.15 a pound.

  2. Weimar Germany was in deflation right up until the hyperinflation event began.

    I don’t expect Weimar, but things can turn quickly. If confidence in Treasuries wanes, and if buyers become sellers, you have a big problem in a hurry.

    If people suddenly want to sell treasuries the Fed can either stand by while interest rates soar (witness soaring interest rates and economic depression in southern Europe) or start buying treasuries en masse to compensate for the selling. The latter action would flood the market with dollars and bring about major inflation.

    Could the fed stand by and allow interest rates to soar? If not then look behind door number two.

    1. Could the fed stand by and allow interest rates to soar? If not then look behind door number two.

      The Fed is trapped. Bernanke’s mixed messages are driving volatility through the roof and ensuring that future reports, no matter how much they are massaged, will have to show a level of weakness that the market is not counting on. Higher rates will force mortgage applications lower and will eventually drive housing down again. Combine that with the terrible jobs situation and it is very possible that we can see a major implosion in the equity markets and a resumption in the currency bear market.

Comments are closed.

Sort By:

Refine Content:

Scholar

Additional Keywords:

Refine Results

or to save searches.

Open
Refine Content