Malpasss puts it this way (if I understand him correctly): "Since inflation is a deeply lagging data series - the Fed was able to claim throughout the 2003-2007 monetary bubble fiasco that inflation was 'moderating' even as the core PCE deflator, upon revision, was rising and always exceeded the Fed's 2% ceiling -- it's unlikely that inflation will ride to the rescue in time, nor does anyone other than commodity buyers really want that outcome."
Can this really be the end? Bob Dylan's lyrics run through my mind: "An' here I sit so patiently/Waiting to find out what price/You have to pay to get out of/Going through all these things twice."
UPDATE: Reader Carl Pham takes my concerns a step further:if you've lived long enough, you'll notice the *order* in which inflation picks up is always the same, or at least it has been for the past 50 years or so: first gas and heating oil prices go up steeply (oil is priced in dollars, after all), then food (lots of transportation in its price), then durable goods and rents, and only last wages and real estate. . . .
I think the mistake many commenters make is assuming that these facts are not already well known to the policymakers, e.g., the Fed or the administration, or even older media talking heads, and that they need to have these facts pointed out to them.
I think that unlikely. I think they know exactly what they are doing, and they rely on muddling the connection between, say, rising gas and food prices on the one hand and what they are doing on the other.
In this particular case, I think both the administration and the Fed feel the inevitable pain is worth it for their goals, which are dominated by the urgent wish to get investors -- potential homebuyers, or potential employers -- to stop cautiously hoarding their cash and start forking it out, buying houses or employing people.
They have (probably correctly) deduced that Democratic re-election prospects in 2012-14 are tied to the unemployment rate and the price of houses, and they will do anything to move those numbers, regardless of future damage. (Besides, a roaring inflation later is just another crisis that cannot be allowed to go to waste! Wage and price controls are lovely avenues for centralized power.)
It's little different than FDR in 1934-35 observing that businesses were sitting on cash instead of hiring people (because of the insane regulatory environment, among other things), and determining to pry that cash out of them. In those days he took the blatant approach -- the undistributed profits tax of 1936. Nowadays a more subtle approach is called for: in this case, inflation, which is essentially a massive tax on savings and retained profits.
It probably doesn't hurt that in addition the one party that does well in a strongly inflationary environment is he who owes loads of money (the debt is rapidly eroded by inflation) and who has an income that is fully indexed to inflation, meaning it automatically rises in lockstep with nominal prices and wages. That of course describes state and federal governments today.
The New Testament Documents
15 years ago