Don't worry about inflation? Oh, I'm worrying

Posted Jun 4th 2009 1:40PM by Zac Bissonnette
Filed under: Economic Data, Federal Reserve

With the Federal Reserve printing presses running on high, many investors are fearing the prospect of inflation -- especially as real estate values start to show signs of stabilization and some commodities show rising values.

But Wall Street Journal (subscription required)economic editor David Wessel wonders whether inflation fears are overblown, and suggests that it can be avoided: "The question now is whether central bankers and the rest of us will remember the lessons of the late '70s and do whatever it takes to avoid inflation."

I'm no economic expert but, because my second grade teacher always said there was no such thing as a stupid question, I'll ask this: With the federal government increasing the money supply at a torrid piece while economic activity is flat at best, how can prices not rise? Put another way: If we can increase the money supply without devaluing currency, why do we have to pay taxes? Why not just print all the money the federal government needs. Heck, why do we even have to go to work? Just print money and send it to us. Everything will be fine.

Sure, it's possible that the Fed will make all the right moves and pull away the punch bowl the second before the economy overheats again -- reducing the recession to the mildest form possible while also avoiding inflation. But in the entire history of monetary policy, has it every actually worked like that?

Bottom line: The United States government is printing cash faster than the economy is growing. How can that possibly not raise a serious risk of inflation?

Tags: Economy, Federal Reserve, FederalReserve, Inflation

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Reader Comments (Page 1 of 1)

7-30-2009 @ 12:15PM

KAZ said...

We are NOT "increasing the money supply at a torrid piece".

The Fed flooded the economy with two trillion dollars, over a two or three month period last fall. Then it fell back to something more like normal monetary inflation.

What's more, the Fed had DRAWN DOWN the money supply for the four years previous to that...from 2004-2008 M1 had been declining every year.

This is what put us into the deflationary conditions that are causing our economic depression.

So, having started with a deficit of money, the additional money does not need to have been inflationary...it was just making up the difference.

Of course the Fed doing ANY of that is bad. It shouldn't have the power to reduce OR increase money supply. If the deflationary effects of four years depressed our economy like heroin depresses the human body, then the two trillion dollars was cocaine, not sobriety. Manipulating the money supply is like a speedball, not a form of physical fitness.

But we're in no danger of some kind of super-inflation from it...we're still in danger of a deflationary spiral.