Don't count me among Henry Blodget's admirers, but he makes an interesting argument in a recent video posted on BusinessInsider.com (see below). Blodget argues that Federal Reserve Chairman Ben Bernanke has a "secret plan" to keep interest rates too low for too long on purpose. Why? To encourage inflation. According to Blodget, Bernanke has two good reasons for doing this:
- Faster economic growth, which leads to more jobs, fewer angry constituents, and a Congress that's happier with Ben Bernanke.
- Faster erosion of the real value of our debts. Consumers and the government are drowning under a massive debt load. One way to make paying off this debt easier is to make the dollars it is denominated in worth less. Bernanke will try to hasten this process as much as possible, taking it right to the point where our creditor China is mad as hell -- but not quite to the point where China actually stops lending to us.
It's hard to argue with Blodget's argument. It makes perfect sense, and Bernanke's conduct may be perfectly rational.
But doesn't that make it pretty disingenuous for him to continue to insist that inflation won't be an issue because he will tighten interest rates before that happens?
While the inflation hypothesis certainly hasn't come to fruition yet -- and many pundits are still concerned about deflation -- the financial markets appear to be pricing in this risk. The Financial Times reports that "...demand for US Treasury inflation-protected securities has accelerated in the past month, reducing supplies of such bonds held by Wall Street dealers to their lowest level in three years, said the Fed."
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
11-09-2009 @ 4:11PM
SouthernMan said...
We already have inflation. Dramatic increases in every area of need. Gas. Food. Housing. Taxes at the local, state and federal. Fees. Transportation ownership or leasing. Everything has gone up 30 to 70%. So whether its Bernacke fiddlin while we burn or the Congress smearing the seats they sit in, we already have massive increase in the cost of staying alive.
Now whether that helps us pay off our debt or not is yet another subject. Why have we allowed our government institution ring up such massive debt...oh that's right...our lovely ruler wannabes have an agenda to rob us till we hit the grave and then steal half of that.
Looks like onflation to me.
11-19-2009 @ 9:45AM
Penn said...
It's no secret that Bernanke wants to inflate. See here:
"Bernanke is following the monetarist depression-prevention model hatched by Nobel laureate and libertarian patron saint Milton Friedman. Bernanke has repeatedly invoked the late economist in support of lowering interest rates to zero, bailing out banks, and pumping untold trillions of dollars into the financial system. The implicit goal of these policies is to ignite artificial inflation."
http://reason.com/archives/2009/09/01/friedman-economics