When the inflation comes, all the people who are fixed-salary based will suffer. That should make much greater percentage than the current unemployment rate. I think the inflation in inevitable given that government is printing so much money to get us out of this recession. I currently have a good job and I am preparing myself for the suffering era when we jump from recession to inflation. I guess more people may need food stamp in inflationary time if that is going to be steep.
The thing that bothers me the most is that everyone still seems to be focusing and complaining on how we got here and how we can prevent it in the future–ie regulation. We really don’t need that right now. What we need are good ideas and a little bit of gusto to try the unconventional. I haven’t heard anyone propose anything new. Just a bunch of recycled soundbites. Over and over and over.
Inflation is absolutely an issue that has to be on policy makers mind. with so much money being pumped in by the feds, dollar no longer backed by gold as it did, is in serious jeopardy.
Lot of people are comparing this to the 70’s but there is a huge difference, back then, consumer debt was nowhere the level we are in now. This is far worst situation and this canned recovery plan is just not going to cut it.
It’ll look like recovery is underway and prices are held in check but when all the bankruptcies and resulting fire sale run their course, the prices will start climbing and their won’t be much that feds can do to stop it.
Inflation for many years already…Paul you are still a JERK…you took my last post off…when are you going to open up your eyes and write the true story…
I don’t think the economy will make it over the first hump let alone double dip. For those of us that have been around for a few years history has proven that you can have high inflation in conjunction with stagnate growth. (Just look up the 1975-1979 period) It was called stagflation and we had it during the Carter administration with many of the same policies that are being proposed now. I can remember when mortgage rates were 16% as well as rates for bank CD’s. This was in conjunction with a 15% unemployment rate nationwide. You think it’s bad now, this is nothing compared to what experienced then. Unprecedented spending along with high tax rates (many states are proposing upping their state income tax rates to cover deficits). We will not only have inflation, but possibly hyperinflation with all of the stimulus thas is being thrown at the problem. When more money in circulated in the system it becomes worth less, it is simple economics. According to your article and based on the unprecidented actions the Fed has taken it is obvious it is no longer seperate from influence of Congress. This is dangerous, because when you get politics involved decisions are based not on what the country needs but what politicans want. This alone will ensure the nothing will be allowed to derail any sign of a recovery. We will try and inflate our way to prosperity. Which of course is impossible. Inflation is the most ruthless tax you will every pay.
There are numerous factors moving with and against inflation. Low mortgage rates and policy incentives are starting to buoy housing prices and stimulate demand yet mounting job losses and delinquencies pour supply right on top of it. Mortgage rates will drift upward over time which should keep a cap on prices- meaning materials and labor will remain under pressure. At the same time though, refinancing into this rate could give the economy $50B-$100B annually. Eventually, people will have to increase the replacement rate on cars which should raise demand, but concessions by U.S. auto workers, suppliers and dealers should reduce costs and increase competition; the lower incomes in the industry’s laborers pockets will dampen consumer demand. If we get the polices right to induce the production/consumption of smaller and more efficient cars this should help keep steel and aluminum in prices in check as well. (a gasoline surcharge that uses the surcharge proceeds to provide purchase credits toward specific mpg standards would be a good way to go- no deficit spending and motivates conservation)
The big question is the dollar. If the government keeps running up debt and printing money without an exit strategy and proper governance, then the dollar could weaken significantly. Obama has played the tax increase card right; baking in tax increases on the back end of this down turn will allow the fed to hold rates down as it provides a curb on growth while generating revenues. This worked very well for Clinton in the late 90’s. He has to work diligently to reign in expenses.
The Fed has substantial range to act to control inflation, given rates are at 0 – 0.25 %. .25 or .50 rate increases will be availble for a long time to come. Rates can be eased up if there are signs, and I would expect the Fed would need at least 2 quarters of data to be able to say signes of inflation exist.
The forces of deflation are still very powerful. The housing market being the worst. There is a lot of downside ahead if things start to bottom in late 09 or 10 and a much worse downside if things continue to deteriorate.
If Obama gets 3.5-4 million saved and new jobs in the next year it may only cushion the jobs to be lost in the pipeline yet.
With high unemployment, there will be no cost push inflation on the labor front.
The only threat to inflation is the out of control health care and the desire to add more to a sector that can’t manage efficiently what it has already. The Fed can’t do anything with that.
We didn’t learn anything with the 1970s and inflation, nor do we learn very well from Zambabwe, Argentina, Germany, and every other country that has done the same thing we are attempting. Why do we think we are any better in 2009? We are seeing our savings (what little we can horde) depleted by inflation. And if anyone believes the inflation thru 2008 was running under 4%, I have some ocean front property in the middle of ND. Will the federal reserve be aggressive enough to raise interest rates to stave off inflation? What is that going to do to house loans, or car loans when we see 10 – 15% rates? Inflation is merely a tax on the public. It helps reduce the government’s national debt, but kills the public.
How do you see a recovery this year when we are losing 650,000+ jobs a month? No jobs, No recovery. Oh, I forgot were going to hire a bunch of temps to go around counting people for a couple of months, what a wonderful recovery that will be. There’s no reason to be worried about inflation, our currency will be worthless thanks to Bernanke and the Fed, does 800.00 for a loaf of bread give you reason to worry? Wake up America.
The US already had outstanding commitments to give funds to or to guarantee funds for various financial entities of $9,000,000,000,000, but when Gauthier said we will print $300,000,000,000 to buy back bonds we went over the cliff. It will be nearly impossible to put the proverbial genie back in the bottle. Inflation is going to hit much quicker than the 7 year stretch in the 70’s. There will be no time for WIN buttons. Unfortunately, inflation will knock the socks off of the small businesses still standing. I believe looking back history will call it one long depression, but there will be positive GDP in 2010, only to be followed by 4 years of misery. We need to prepare as much as possible now.
Juan from Birmingham nailed it. You beat me to it. Well done. Increasing the money supply so drastically without accompanying creation of any real, tangible goods of value leads to inflation, period.
Anyone who can’t see inflation on the horizon (thanks, Big O) is either short-sighted or unaware of basic economics.
If we keep monitor the banks and oild companies to make sure they are not playing funny games (remember last year’s tax rebate????), we will be totally okay.
The federal goverment is broke , the states are broke , our people are tapped out . Just what does everyone think is going to happen here ? That we will skirt out of a depression on sunshine and love ?
Can the news media go five minutes without speculating on something? Whatever happens happens at this point. No one knows what’s really going to happen and the sooner the pundits and everyone else just admits that, the sooner we can all stop being stressed out and just accept whatever comes.
Mike from TN got it exactly right. Commodities are already trending upward and we’re in the midst of “the worst economic crisis since the Great Depression.” (so the “experts” say; that is completely inaccurate). The government is printing massive amounts of money, and as soon as there’s even the slightest hint of a recovery, prices are going to go out of sight.
The best medicine for inflation is prevention. As is typical of our politicians, they’re not thinking of tomorrow. They’re thinking of what will improve their approval ratings today and give them a good shot at re-election. We need to be thinking about what this inflation is going to do to people when wages are already stagnant in nominal terms and contracting in real terms.
I agree we are not out of this recession at all, and we have spent 12.4 trillion dollars in bailouts since 2007 by CNN accounting. I do think we will have another dip in 2010, 2011 and 2012 but that will not be a double dip it will be the largest depression making the 1930s look like kindergarten.
The U.S. government has spent over two trillion dollars since October on several insidious bailouts. This money has not come from increased productivity or anything else of value. It comes from borrowing and from the government printing tons of money. This is a classic basis for inflation (any well-educated economist knows this). The value of the currency is bound to decline going forward because more of it is being printed to finance current expenditures, unmatched by fundamental improvements and efficiencies in production and economic growth. Ironically, we are inflating our currency when the economy is actually contracting… so absolutely we need to be worried about inflation… perhaps not right now, but inevitably sooner than you think!
Absolutley. If oil can go from $32 to $52 during a period of falling demand and growing supply, how high will it go when there is an actual recovery? Looks like the crooks on Wall St have already set the stage for the next oil rally.
No. Prices of almost everything that I buy are falling (deflation) not rising. In addition, prices of a lot of big-ticket items are still falling: houses, cars, etc. There is just no inflation in sight.
The Fed will need to stay on watch for inflation, and they have a good track record of doing so. They usually kill off economic recoveries before they get started by raising interest rates at the slightest sign of inflation.
The government should worry about unemployment; stimulate the economy directly with public works programs.
So here’s the thing as I see it. With interest rates at all time historic lows, if a turnaround does happen; there will be a rapid growth of lending that could fuel inflation. That being said, with the rates as low as they are, the fed has just about every tool in the drawer to deal with it. Also remember that moderating inflation is the primary responsibility of the fed, and probably the job it is most capable of doing well. If a significant recovery starts to become apparent, the raising of Federal Reserve rates, and moderation of available capital will be key in stopping a second recession.
Given the fantastically depressed value of just about everything in today’s market, the moderation of interest rates in a recovery would be effective at controlling inflation, while not entirely stagnating growth.
The moral of the story here is; THIS IS A PROBLEM WE WANT TO HAVE.
From an economic perspective, I think the Fed should be raising interest rates NOW. IF they wait until the 4th qtr. of 2009, I think we will see terrible inflation beginning in the second 1/2 of 2010.
Personally, I don’t mind terrible inflation because all my large holdings are in real property or equities which will appreciate along with inflation (to some degree anyway). I’m also in a lot of fixed rate debt, so I don’t mind inflation or interest rates at this time.
The thought of the economy double-dipping assumes that this recession is already over. Yes, the last few weeks have been good for the market, but jobs are still being lost at a record pace and default rates on loans are continuing to increase. Add to that the pressure on the job market that will come from a new set of college graduates entering the work force in a month and increasing commodity prices (oil and gas always increase this time of year to coincide with increased driving) and it’s clear that the economy is still balanced on a slim tightrope. Much like I said back in November, we haven’t hit bottom yet just because the “experts” want us to have gotten there.
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IMHO, there is little worry of inflation in the short term, say 1 to 2 years going forward. Inflation, of course, will be inevitable because of the vast amounts of “money out of thin air” that the Fed and Treasury have been creating. This is obviously on Ben’s mind as he is now starting to set the stage for “pulling” credit out of the market should a recovery ever start, which is not a very likely event in the short term either…6 to 12 months.
How could inflation really take root anyway? Wages have been falling for years, unemployment is rising (and the real rate of unemployment IS NOT what the government and the TV talking heads tell us..the more accurate level of current unemployment is probably in the 18 to 20% range, and it will climb higher going forward through 2009 and into 2010), so inflation can’t really get a foothold since there will be no way the paying public can “buy” into an inflationary cycle. If price inflation starts, people will just hunker down even more so than they already have and inflation will peter out. We are in a DEFLATIONARY position now, and will be stuck here for the next 6 to 12 months easily.
Looking further forward, say 1.5 to 2 years from now, Inflation will surely start to become a problem since the only way to reduce our deficits is to inflate them away and the government will have no choice but to FORCE inflation in a BIG way. There is no logical way to create money and continue to borrow money and to spend money with reckless abandon to fix debt problems. You can’t spend your way to economic prosperity. Creating massive new debt to solve massive old debt problems is just plain wrongheaded. This is not going to end well.