The WSJ: “Inflation bunker”

Yesterday I jokingly posted “The inflation menace”. Today this guy argues it´s a very serious matter in today´s circumstances:

The Federal Reserve, which celebrates its 100th anniversary this year, is tasked by Congress with managing the money supply so as to preserve price stability while maximizing employment. But with the central bank having increased the money supply by 25% since the financial crash of 2008—while the federal government has borrowed $5 trillion—can inflation be far off?

Low and stable inflation has been a fixture both of the “Great Moderation” and the “Great Recession”. The “GM” had the additional feature that NGDP (and RGDP) was relatively stable. That feature has been lost since 2008. And inflation remains low and stable because nominal spending, although showing some growth, has been depressed for more than four years.

What matters for overall economic stability is nominal (not just inflation) level stability.

About these ads

One thought on “The WSJ: “Inflation bunker”

  1. Do any of these inflation hysterics ever ponder Japan?

    Do they ever wonder at Japan’s huge federal borrowing–yet deflation?

    (I actually oppose large government and deficits, but that is a side point).

    Inflation rates, and inflation expectations, are at record lows.

    I wonder if this is how Japan got to be Japan—always someone in hysterics about inflation. And then a huge bond-holding class emerges, fearful of higher interest rates…..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s