Posted by
Andrews on Friday, May 22, 2009 5:47:12 PM
After writing about my fears of inflation for some time, mostly thanks to the Obama administration intention to balloon up the national debt, I am happy to see
that some among the MSM are finally starting to recognize this very real danger. After all, I know doctrinaire Keynesians don't believe massive government spending causes inflation (or they do but just think it is too good to pass up), but someone out there has to have noticed that Federal reserve open market operations, which always increase after the deficit increases, always precede massive inflation. It isn't exactly rocket science. Government sells bonds tot eh fed, the fed creates 2-3 times as much credit secured by those bonds, the increased money supply drives up prices, and, after a brief decline in interest rates, interest rates skyrocket as investors come to expect more inflation. We have seen it enough times since the birth of the Fed that no one should be surprised, yet, strangely, every time increased money supply leads to inflation and then recession everyone acts as if it was completely unpredictable.
Are politicians (and newspaper editors and many professional economicsts) really that stupid?
POSTSCRIPT
My most recent writing on inflation can be found in "
Living Large During the Good Times", "
Trashing the Economy" and "
Does It Matter?"