Friday, April 16, 2010
With apologies to The Vapors; I don't think so but the quote I posted from Niels Jensen earlier this week is still on the front burner.
The inescapable conclusion is that when you need inflation the most, it is the hardest to engineer whereas, when you don’t want it, you can have it in spades.
The context here is the debate between US debt issuance causing meaningful price inflation versus deleveraging causing a debt spiral, IE deflation. This article from Seeking Alpha delves in with more detail but I had another thought with this. Part of the equation is the reliance on Ben Bernanke and the rest of the crew to know when to start raising rates. While some of the policies that have been enacted have been effective in the short run (we do not know about the long run yet) we must remember that this is the same group who publicly had no idea the financial crisis was coming and so reacted very late.
The reason I say "publicly" is because obviously the Fed Head can't say "hey we got a big big problem coming," that would surely make any bad situation worse. While I do not know how the Fed could have acted preemptively without causing a panic the fact is they did not act preemptively and it is reasonable to conclude that if they did see something bad coming they would have done something.
Given the above quote and the extent to which the country is relying on the guys who previously got it wrong to now get it right is a high expectation.
I'm not in the deflation camp at this point but I am thinking about this side of the debate a little more lately.