Yesterday’s MSN Money headliner, Anthony Mirhaydari, still claiming inflation is just around the corner. Guess if you hold that view for long enough–now over 4 years–it’ll get right sooner or later. Fortunately it’ll be later, and if Bernanke stays in the seat or as I hope is replaced by Yellen, we won’t see it as a problem at all. My concern right now is deflation, but that for another day.
This week even Kiplinger’s Personal Finance talked about the lack of inflation in spite of the pundits yelling about QE being sure to cause not just inflation but “hyper”-inflation. This inflation scare has been ongoing since QE began in November of 2008 and we have yet to see inflation. So why don’t guys like Mirhaydari get it? Are they leaning so far in one political direction they won’t or can’t learn. Or maybe never got beyond Econ 101 where we all learn the absolute basics like “increasing the money supply will cause inflation”.
If any of us choses to write about and attempt to influence economic thought, surely they would have gone on to 201, 301 where all the exception come to play such as Keynes regarding liquidity traps–where adding money to the mix will not impact inflation until nearly all excess production capacity is used up. And adding money is really the ONLY way to fix a liquidity trap without causing a full scale depression. The number of folks still yelling inflation are dwindling rapidly as the years have proven them wrong. Theseall few diehards are perhaps too stubborn to learn or maybe have a financial or political stake. Unfortunate when logic, education, and the lessons of history become clouded by politics.
Meanwhile a lot of investment capital went onto inflation offsets in 2008 and has remained there. Those investors continue to lose equity. All the while we have stated the obvious, no inflation yet. With the right folks on the job at the Fed we have a long way to go before we see real inflation cutting into our equity, and I’ll be watching. Frankly I won’t be concerned at all until unemployment–including shadow unemployment–nears 5%. If you read back I’ve already been watching, writing, and so far being on the money.