Is Inflation Making a Comeback?

The Federal Reserve isn't likely to repeat past mistakes.

Gas is going for more than $4 a gallon, gold is riding a boom, and the Federal Reserve is seemingly complacent about these developments. Among critics of Barack Obama and Ben Bernanke, the consensus is clear: Inflation is making a comeback.

"The Bernanke policy of printing money is setting the stage for massive inflation," claims former House Speaker Newt Gingrich. Rep. Ron Paul (R-Tex.), decries "the inflation all Americans suffer due to the Fed's relentless monetary expansion." Former Sen. Rick Santorum (R-Pa.), fears not just inflation but "potentially hyperinflation."

The claim has a surface plausibility. If the money supply is growing and prices are rising, what more evidence do we need? But first impressions, in this case, are badly misleading.

Take the price of gold. It has more than doubled since Obama was elected in November 2008, allegedly because investors want a hedge against an increasingly worthless currency.

But gold prices were also on a rocket during the previous eight years. And they were not a portent of raging inflation. During the administration of President George W. Bush, the consumer price index (CPI) rose at an average rate of less than 3 percent per year—while gold was tripling in value.

Oil and other commodities, believe it or not, can be affected by events that don't occur in the United States. Bentley University economist Scott Sumner, who sees no chance of an inflation outbreak, attributes rising prices for oil and other goods to strong demand in developing countries, particularly China.

Though some U.S. prices have jumped recently, most have not. The "core" inflation rate, which includes everything except food and energy, was 1.2 percent over the past year.

That may seem painfully irrelevant, given the supreme importance of groceries and gas. But you can't have general inflation without core inflation. If the Fed is flooding the economy with excess money, sooner or later all boats will rise.

Over the past decade, core inflation provided a pretty good gauge of overall inflation. The core CPI rose by 21 percent. The full CPI rose by 27 percent.

Comparisons with the last serious bout of inflation, the 1970s, suggest that today's worries are misplaced. Back then, it wasn't just fuel and food that soared: The cost of everything soared.

The depreciation of the dollar, likewise, is not really the unspeakable horror often portrayed. No one seems to recall that the greenback fell against the euro for most of the past decade.

That long-term decline, it turned out, was not a sign that you would soon need a wheelbarrow to carry your bus fare. Inflation remained firmly under control despite the worsening exchange rate.

There is no indication that inflation is heating up this time, either. Investors wouldn't be snapping up three-year Treasury notes at 1 percent if they were expecting their purchasing power to be ravaged by wolves at any moment.

It's true that if the Fed pumps too many dollars into the financial system, it will eventually mean too much money chasing too few goods, pushing prices through the roof. But in the aftermath of the near-death experience of 2008, banks have been happy to hang on to cash rather than lend it out. By a broad measure known as M2, the money supply has been growing very slowly.

What Bernanke has done to ward off a catastrophic collapse is not at odds with keeping inflation down. In fact, a decade ago it was recommended to the Japanese central bank by Nobel laureate economist Milton Friedman, who was famed for his aversion to inflation.

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  • Jerry||

    1. Largest investor in treasuries today is the Fed.

    2. Most of the inflation in the US was "exported" to China, where it didn't cause much problems because of productivity gains. Now that China is slowly crashing, inflation is looming around the corner.

  • ||

    Largest investor in treasuries today is the Fed.

    ..and since the Fed is not a creator of anything of value, the upshot is that when the Fed "buys" a treasury bond, all they're doing is inflating the currency some more.

    -jcr

  • ||

    But they are giving that money to government planners who are creating and saving jobs!!

  • ||

    Multiplier effect JCR!! Multiplier effect!!

  • ||

    It is ingrained in the minds of otherwise very intelligent people who don't know Mises from the measles.

  • Realist||

    "It is ingrained in the minds of otherwise very intelligent people...." Bullshit!

  • JoshINHB||

    Most of the inflation in the US was "exported" to China, where it didn't cause much problems because of productivity gains.

    Other than the mother of all building booms and industrial mal investment.

  • Yup||

    Directed at point # 2: According to Shadowstats.com's numbers, CPI inflation today is the same rate as it was in the 70's when you use the same methodology the government employed during the 70's. So... even if we exported inflation to China, inflation is still as bad today as it was in the 70's.

  • some guy||

    The Federal Reserve isn't likely to repeat past mistakes.

    But it will happily make new ones.

  • Alan Vanneman||

    Congrats to Steve Chaptman for writing, and to Reason for publishing, an article about inflation that's actually intelligent.

  • ||

    Alan, I think you need to try to learn the difference between intelligence and sophistry. What Chapman did here was nothing approaching an intelligent commentary.

    -jcr

  • Sanjuro Tsubaki||

    Sophistry appears to be Chapman's speciality.

  • Anal Vanneman||

    Stop misspelling my name!

  • Jack Torrance||

    I'm waiting for the sequel too

  • STEVE SMITH||

    VANNEMAN SO ANNOYING, STEVE SMITH CAN'T DECIDE BETWEEN PUNCHING HIM IN FACE OR RAPE TILL HE SCREAMS. DECISIONS, DECISIONS. STEVE SMITH HAVE IDEA. WHY NOT BOTH?

  • ||

    I hope this is right. I suspect it is not. But I hope it is wrong. I will say this. If we don't get a big bout of inflation after the kind of increases in the money supply we have seen, we can safely write the gold bugs off as cranks, because if this kind of action doesn't produce inflation, I can't see what would.

  • Almanian||

    I hope this is right...But I hope it is wrong.

    John! You're John Kerry? Whoda thunk it! :)

  • ||

    I hope it is right.

  • Fatty Bolger||

    He was against inflation before he was for it.

  • ||

    Plausible inflatability.

  • Realist||

    I would have. John Boy's a dickwad.

  • ||

    Steve,

    What in the world is wrong with you? The "core inflation" and CPI numbers are unmitigated bullshit, because real people do buy food and fuel. Bernanke has shit out trillions of dollars in the last couple of years, the banks are pyramiding untold amounts of additional credit on top of that, and you're participating in the standard bankster shell game of pretending that inflation is some kind of natural phenomenon.

    Inflation works the same way now that it did when the Roman emperors were dipping bronze slugs in silver and pretending they were worth their face value. When you increase the money supply, prices rise in response. It takes a while for the the effects to percolate through the economy, but they always do.

    -jcr

  • Almanian||

    But, but, JCR....it's going to be different this time! Don't you understand - WE HAVE THE RIGHT PEOPLE IN CHARGE NOW!!

    I'd bang my head against the wall if I thought it would do any good. Teh stoopid in our government and our betters is at an all-time high.

  • jacob||

    +1 :: Bush was monetizing the debt as well. When the lending rate to banks is below unadjusted GDP, you are effectively pumping money into the system. That the Obama team is even more economically clueless should not be all that surprising. Geitner so far in over his head, he is buried in whale shit.

  • Joe M||

    I'm actually pretty disappointed that CPI numbers are referenced in this article. They're "adjusted" how the CPI is calculated many many times since it was originally conceived. Going by the original standards of the CPI, inflation is 10% annually right now.

  • JoshINHB||

    The open secret within the CPI manipulation is that it also overstates GDP growth.

    Calculate inflation correctly and the recession never ended.

  • ||

    Milton Friedman, who was famed for his aversion to inflation.

    That just tripped the bullshit alarm. Friedman consistently advocated inflation at a steady rate.

    -jcr

  • WTF||

    How long before they break out the 'WIN' buttons? Oh, right, they're pretending there is no inflation.

  • WTF||

    Damn joke handles

  • Anus||

    we love you too ;-)

  • WTF||

    LOL

  • ||

    If we just ignore the any stuff that rises in price, we will never have inflation!!

  • WTF||

    Well of course, that's why the CPI ignores food and fuel. So we can never have inflation!

  • Almanian||

    That's crazy....so crazy, it might just WORK!

  • jacob||

    please kill me now.

  • Yup||

    I heard Bernanke was pushing for the Core CPI to include only home prices. Makes sense to me, a home is the single largest purchase that a person will make in their lifetime. Once that goes through, all this talk about "inflation" will be proven to be nonsense since we are in fact experiencing a downward deflationary spiral. Oooh there's a rainbow outside... excuse me while I go and get my pot o' gold.

  • STEVE SMITH||

    CALL ME

  • x||

    Unsold.

  • ||

    The Bernanke and his bankers will take commodity prices down to show whose the boss...for now.

  • Sean W. Malone||

    What JCR said X9000.

    CPI for all consumer goods in urban areas rose nearly 12% just for the month of march. Does Chapman seriously think that monthly increases,like that are nothing to be concerned about?

    Of course oil and other commodity prices are effected by events outside the US, but give me a fackin' break, yeah? America is already seeing substantial price inflation and everybody but government people seem to know it.

    Also, Friedman was a fan of steady, slow inflation, but even he realized that it is "always and everywhere a monetary phenomenon." I really wish I could understand some journalists' refusal to understand economics and history. Fail, Chapman. Fail.

  • ||

    agreed. giant fail of an article.

  • JoshINHB||

    I really wish I could understand some journalists' refusal to understand economics and history.

    It's called not biting the hand that feeds you.

  • Ronald Bailey||

    I really wish I could understand some journalists' refusal to understand science and AGW.

  • mofo||

    "Oil and other commodities, believe it or not, can be affected by events that don't occur in the United States. "

    money, too, can be affected by events outside the US. When China alone holds a trillion dollars worth of your paper, its a stretch to say that the fed is totally in control.

  • Fatty Bolger||

    Well, that's easily solved, we can just inflate it away... oh.

  • Ben Bernanke||

    Federal Reserve has been vedy vedy good to me .... Your American inflation, I don't know!

  • DLM||

    Ben Bernanke

    I heard 'ben' means 'stupid' in Chinese.

  • Dig Bog||

    Require every economist to write "inflation" or "deflation" for their prediction of how things will be on, say, Election Day; and if it turns out wrong, resign.

    Of course, I'm not an economist, so for all I know inflation and deflation can occur simultaneously or are even synonymous.

  • ||

    The CPI is BS. Housing accounts for something like 40% of it, and as housing prices go down, so does the CPI. It does not take into account that homeowner's mortgage payments don't decrease because the value of their house decreased. So since the value of houses are declining, it makes the CPI lower - that is BS.

  • I, Kahn O'Clast||

    House prices are not reflected in the CPI... Rather they use rents as a proxy and during the housing boom many complained that the use of rents (which lagged spectacularly) was unfairly dampening the actual rise in in inflation. We are certainly not seeing CPI fall by the levels we would if your assertion were true.

  • ||

    Mr. Chapnman,

    It is my opinion that your claim "The Federal Reserve isn't likely to repeat past mistakes" will only prove true if the central bank changes the habits of a lifetime.

    Even if you and the employees and apologists for the Federal Reserve Banking Cartel do not (or refuse) to accept what inflation really means, a growing number of others do. These individuals can hardly be labeled "fringe" or "gold-bugs" any longer when they are joined by more "respectable" individuals and organizations.

    "Things really have come to an interesting juncture when the second-largest academic endowment in the U.S., managed and advised by sober, rational people, decides that what they need is insurance against getting, in essence, robbed, via inflation, by fiscal and monetary policy." http://blogs.reuters.com/jim-s.....nvestment/

    Regards,

    Charles

  • ||

    Strictly speaking, there is a reason to look at core (ex food and energy) CPI. While higher food or energy prices are certainly painful, they aren't necessarily indicative of a hike in the general price level. They can bounce around without prices for everything else going up.

    That said, the Fed's current obsession with core CPI is starting to look a little myopic. Food and energy prices haven't been bouncing around, but steadily rising. Either it represents a change in relative prices as a negative supply shock or it will translate to prices overall.

    My real concern is with money velocity. There's a boatload of printed money sitting in the Fed vaults in the banks' names. Right now, they're buying Treasuries with the money as a carry trade. If the banks decide to start lending it out (and that's what we're hearing the administration wants), there will be inflation. Chapman thinks the Fed won't let that happen. I think that represents a lot of faith in the Fed's ability to forecast bank behavior and a lot of faith in the Fed's willingness to ratchet up rates going into an election season.

  • Inflation||

    Don't call it a comeback, I been here for years!!

  • JoshINHB||

    And Chapman's metamorphosis into an establishment douche bag is now complete.

  • I, Kahn O'Clast||

    The main driver of global deflation has been globalization. Used to be that economists actually worried about the NAIRU (Non-Accelerating Inflation Rate of Unemployment) but as global trade grew, it became increasingly difficult to judge what was meant by rate of unemployment... In the 90's unemployment fell to very very low levels yet inflation remained low and falling. This was due to imported deflation as the price of consumer goods consistently fell as production moved to places like China.

    In a sense the denominator by which one might measure unemployment became a global figure rather than a national one. The issue now is to what degree the global slack is being taken up, to what degree wages and general production costs rise, what declines we may see in total factor productivity as increasingly marginal workers enter the workforce, and to what degree consumption (and inflation) rises in "emerging" economies.

    As long as the dollar remains a global currency and goods production a global phenomenon then FED monetary policy is a blunt instrument and unlikely to generate inflation on its own. Should the dollar lose its status (as once did the pound) or should global consumption and inflation rise only then are we likely to see generalized goods inflation.

  • JoshINHB||

    The US will experience hyper inflation when the dollar ceases to be the world's reserve currency.

  • ||

    Crude oil has fallen from $112/bbl to $96/bbl in a week - after peaking at $147/bbl in 2008 before QE began.

    So oil prices are erratic while QE is in motion - but certainly they are not up. Chapman is right on.

    And the Treasury markets confirm it - no one here will address the willingness for private investors to pile into low yields while in an inflationary environment.

  • Mike M.||

    And the Treasury markets confirm it - no one here will address the willingness for private investors to pile into low yields while in an inflationary environment.

    Exactly which "private investors" are you referring to? The biggest private bond trader in the world is Bill Gross of PIMCO, and not only has he completely divested his entire portfolio of USTs, he's actually placed bets against them.

    The only noteworthy entities buying USTs right now are governments. As usual, you have no clue what the hell you're talking about.

  • ||

    Bullshit. Larry Fink of Blackrock is buying Treasuries and is long the dollar. The dollar has risen about 5% this week.

    The Fed has inflation contained. You must be a Ron Paul crank who doesn't understand the Fed and gets his economic education from that lunatic Griffin (Creature from Jekyll Island).

  • ||

    shrike, what percentage of your total portfolio is in US Treasuries?

  • ||

    zero - too boring, but some people want that.

    But the perception of the dollar is amazingly schizo - foreigners and US investors see the dollar as safe while retail US investors see the dollar as doomed.

    TBD.

  • Mike M.||

    And there you have it: the troll doesn't even really believe his own bullcrap.

  • ||

    shrike,

    You're being a tad disingenuous here. Yes, investors are in the Treasury...on the short end. That's being driven as much by banks parking their money there for relative safety and the opportunity to generate carry than it is by long-term inflation expectations. The spread of the 10 over the 2 is roughly 263 bp. The average over the last 20 years has been 116 bp. The spread of the 30 over the 2 is 427 bp the historical average has been 171 bp. The long-term spreads over the 3-month tell the same story.

  • ||

    plausible post - data supports.

    rare here.

  • Realist||

    This is the second time in a week that shrike has agreed with a Reason article. Reason must be so very proud!

  • ||

    I agree with about 95% of the articles here.

    Its the posters that bring the crazy.

  • Yup||

    To say Treasury markets confirm that inflation in the future will be tame means you believe in the efficient market hypothesis. While free markets are the most efficient way to allocate capital, it is still possible for them to get things wrong. In terms of private investors pushing down treasury yields, the people who are buying treasuries are probably the same people who had to be bailed out by the treasury and federal reserve when their bets in the last housing crash bankrupted them. In other terms, if the U.S. had actually followed free market principles, the yield on treasury debt would probably be higher. Add in the fact that an incredibly high amount of the nation's debt is owned by foriegn govt's who 1: can't unload their holdings without creating a diplomatic crisis and 2: manage such large amounts of money that the logistics of finding other investments that beat the return of the dollar is extremely difficult. Hence, their default plan is to park their cash in the largest and most liquid asset market in the world: U.S. treasuries. As for the remaining part of the debt that doesn't fall in the previous two categories, there are money managers who so believe in Ben Bernanke's ability to keep inflation in check that their purchases of treasuries will be proven a bone-headed move in hindsight... just as buying 5 houses for investment in 2007 was a bone-headed move in hindsight.

  • cmace||

    What the fed is trying to do is get *some* inflation to drive real wages down so hiring will start.

    The trick is to control the inflation.

  • BigT||

    What we need here in Australia are 'some' rabbits.

  • noneya||

    "The Federal Reserve isn't likely to repeat past mistakes"
    They have been repeating that mistake since 1913.

  • ||

    This is a testing the water type piece to see if it's safe yet to start calling Ron Paul a fringe whacko and to begin marginalizing Paultards.

  • ||

    Correct. Telling me there isn't any inflation when I'm spending more and more to heat my house, feed my family, and drive to work.

    Maybe runaway government spending, printing money to pay off that debt, banning domestic oil production, and forcing us to burn corn in our gas were all really bad ideas. Certainly an incredibly bad combination.

    Now raise taxes on the top rates without indexing them for inflation - so we all inflate into them while falling behind in terms of real wealth.

  • Nomic||

    Between hearing Matt Yglesias and Steve Chapman, I have had an epiphany:

    You won't experience inflation if you buy enough consumer electronics and only buy food and fuel with what's left over. So inflation isn't real as long as it only hits poorer people and the e-unconnected!

    Truth is I'm feeling it, and I'm neither poor nor e-unconnected. I'm just among those who doesn't feel the need for the latest flexible camera-recorder-calendar-alarm clock-browser-phone.

  • Federal_Reserve||

    Shut the fuck up, libert-ARYANS. Is all this shit coming from you guys because Obama's an African-American? Is that what this is? Sarah Palin drinks the blood of atheist children as they sleep, and libertarians hate poor people.

  • ||

    Oh for fuck sake. What's it going to take for Reason to quit running Steve Chapman? Oust him already.

  • Mike M.||

    Seconded. He's been easily the worst one here since the day that Weigel left.

  • BigT||

    Chapman is like Tony, shrike, or MNG - court jesters to keep Reason from becoming an echo chamber.

  • Realist||

    Federal Reserve: Repeating past mistakes since 1913.

  • Realist||

    Sorry noneya I didn't see your post, but we agree on this.

  • ||

    A few thoughts:

    Globalization has certainly put some deflationary forces in motion - you can get the same stuff for less. Exactly why this is so bad that it must be fought with every tool at our disposal has always been a mystery to me.

    The end of asset bubbles also causes deflation. Again, I fail to see this as a problem, in the long run.

    The usual reason for excluding food and fuel from CPI is that they are too volatile. However, you don't deal with volatility by ignoring it, you deal with volatility by looking at moving averages. That makes me think that they are excluded for some other reason.

    And the notion that fuel inflation doesn't drive prices up across the board is utterly ludicrous. If there is one single sector that has this effect, its definitely fuel.

    The collapse in commodities markets beginning last week was at least in part a domino effect of silver being dumped. Silver got dumped because margin requirements for silver got hiked. Now, there are certainly some fundamentals out there that would support a retrenchment in commodities, but lets not kid ourselves: the decline in silver was intentionally engineered, and the massive amounts of money governed by brainless algorithms guaranteed that it would be contagious across commodities as a whole.

  • ||

    Someone with an economics degree point out where I'm wrong:

    I've heard the argument, several times in the last few days, that there can be no inflation because we don't have wages spiraling up...

    It seems to me, that the increase in wages is an effect of inflation rather than it's cause. If this is true, it is completely possible that there IS inflation and we aren't seeing the wages increase for precisely the reasons the author mentions (high unemployment).

    Where am I off base here?

  • ||

    "Francisco d'Anconia",

    I do not have a degree in economics, so ignore my layperson's opinion if you wish, but claiming that we are not experiencing inflation because "we don't have wages spiraling up" is analogous to claiming that the houses on our block aren't on fire because the fire department hasn't been called yet.

    Regards,

    Charles

  • Tony||

    In general, runaway inflation implies an increase in the nominal price of all goods and services, as well as labor (creating a vicious cycle).

    There is the possibility of stagflation--inflation plus low economic growth. That's caused by supply shocks, in general. What our economy has suffered from is a demand shock. We risk further recession, not runaway inflation.

    Interestingly, the policy prescriptions of those most worried about runaway inflation (meaning they are untethered to reality) are the ones most likely to cause runaway inflation (the inability to raise taxes or borrow to pay for things).

  • ||

    You moron, borrowing to pay for things always causes inflation. How do you think the inflation of the 70s was eliminated? With a prime rate of 20%, that's how.

  • CrackertyAssCracker||

    Because thats how the Keynsian-theft-apoligists define inflation. So by definition, you are wrong.

  • Alex||

    I'm not too familiar with the stagflation of the 70s, but is it plausible that the reason "core" CPI has not been rising to any troubling degree is because people have had to substitute away from goods counted in "core" CPI?

    For example, the prices of energy and food have gone up greatly. Also, unemployment is at 9% (being generous). As a result of daily prices in food and energy going up, and as a result of a significant portion of the public out of work, could it be that people are simply not buying as many TVs, cars, Ipads, etc., at least not enough to put a large upward pressure on prices?

    I don't know if that's true or not, but if there is some truth in there, it hardly seems serious to talk about inflation not being a worry because of the "core" not going up.

  • ||

    "Core" inflation appears to be operationally defined as the change in price of things the price of which is changing the least.

    Think of it as the equivalent of adding grades for Effort and Conduct in elementary school, so everyone can get an A. To avoid the gross unfairness of politicians being held responsible for their actions long past the sell-by date of their promises, we just define some new measures by which they haven't made any mistakes at all.

    Try this at work! Instead of putting up with your bosses refusal to give you a bonus on the out-dated notion that your sales have declined, point out that "core" sales (your sales to repeat customers, say) have actually increased. Or sales to people with last names beginning with K. Whatever it takes.

  • Len||

    Congratulations Chapman, you have won a nobel in Economics, just like other economic idiots such as Keynes and Samuelson who wrote of the success the central planning of the USSR.

    Without even getting into fiat money vs. real money, why would there be any need to print more money? If there is less money in relation to products and services then let the money amount remain the same, and more can be purchased with less. To print more that is not real wealth of course leads to inflation, there is more of it in relation to products, and of course more will be needed, and when more is printed it is not dropped out of a helicopter and evenly distributed, but it goes to the "ins" first, who profit from it, then eventually of course inflation comes along BEFORE wages go up.

    Here though is the stupidity, real money is the product of labor to a commodity, be it tobacco, salt, gold, whatever, that people place a value on. This means wealth has been added to the economy. Fiat money a la the FED means that debt is purchased by the FED with created dollars, so what we have is debt created and represented by these dollars, so how can anyone who is not morally bankrupt or economically literate support such robbery?

    As for the money tha

  • Fiscal Meth||

    I didn't know Chapman was a Kenyan too.

  • @michaelmalody||

    US public debt is worthless. it is an uncollectible nothing denominated in fiat.

    the inevitable conclusion with time being the only variable: it deflates to its true value of $0 or the Fed inflates it to its final effective resting place.

  • ||

    We do have a wage spiral... only it is not your cash wages that are going up, it is your cost to your employer. Employment costs include benefits and we all know what has happened to health care insurance over the last few years.

  • ||

    Why is this garbage in a libertarian magazine, look at the rise in commodities from apples to zinc and you will see a huge rise in past year. I don't believe we have nothing to fear about inflation for a second.

  • ||

    Has Steve Chapman ever written anything here that isn't an extended fellation of the Conventional Wisdom?

    I do hope no one is wasting money paying him a salary, when the same zero-calorie Don't Worry Be Happy bromides can be had for free by reading press releases and glossy PR brochures.

    You gotta love his faith that there can be a permanent disconnect between commodity prices and the prices of everything else. Like, the price of everything you need to make foo is going up -- but, hey, that doesn't mean the price of foo will go up!

    Sure, Steve. Man, talk about taking the blue bill.

  • ||

    Let's not get ourselves all confused:

    INFLATION is increasing money supply, period. Prices (CPI) are NOT inflation. They are simply trailing INDICATORS of inflation.

    Prices of individual goods can fluctuate for many reasons, against USD or gold or each other (how many bushels of wheat per gallon of gas?). This is why, in order to be a reasonably accurate (pardon the assumption) trailing indicator, one must consider the asking price of a basket of goods and services.

    If you want a good primer on money supply, see wikipedia http://en.m.wikipedia.org/wiki/Money_supply

    M3 took a dip after 2008. This hurt the financial institutions (investment banks) and the overall economy. M2 leveled off slightly. This is due to a (temporarily) reduced multiplier effect (see "fractional reserve banking). The FED has (some) control over M0, and can have minor effect (they hope) over the other Ms via M0.

    Google "chart" and M3, M2, M1, and M0. You can see that the BASE M0 has tripled since 2008!!! This is the "spread it around" part. The "mop it up later" comes later....and if you believe the FED will have the spine to mop it up, I got some bridges to sell you.

    Prices may or may not be going up or down now. But inflation (increased money supply) HAS ALLREADY OCCURED! Prices WILL catch up, eventually...it's just matter of time.

  • Rodger Malcolm Mitchell||

    Thank you for your unique definition of inflation. It's so new, I think we should give it a name. How about the Provocateur Inflation? Strangely, it doesn't seem to correlate with anyone else's definition or even with the facts, as shown at: http://research.stlouisfed.org/fredgraph.png?g=ti, which indicates no relationship between money supply and what everyone else in the world considers inflation.

    But hey, it's always fun to invent new meanings for words, isn't it?

  • ||

    You're right....there's no inflation, and prices are not going to go up.

    So....can I buy your gold?

  • ||

    From Wikipedia: http://en.wikipedia.org/wiki/Inflation

    "The term "inflation" originally referred to increases in the amount of money in circulation, and some economists still use the word in this way. However, most economists today use the term "inflation" to refer to a rise in the price level. An increase in the money supply may be called monetary inflation, to distinguish it from rising prices, which may also for clarity be called 'price inflation'.[23] Economists generally agree that in the long run, inflation is caused by increases in the money supply. However, in the short and medium term, inflation is largely dependent on supply and demand pressures in the economy.[24]"

  • ||

    Calling price increases "inflation" is confusing the effect with the cause. For example (from http://wfhummel.cnchost.com/inflation.html):

    "Price inflation is commonly thought to be caused by "too much money chasing too few goods." The general price level is indeed correlated with the money supply, but correlation should not be confused with causation. In a modern economy, prices are seldom driven by the money supply. More commonly, the money supply reacts to changes in the general price level."

    Uh, huh....sure it does, pal.

  • Ekim||

    We don't need any inflation at all. There is nothing wrong with lower CPI prices as productivity improves. Just stop printing. Let the free market determine prices and interest rates, not a central planning committee.

  • ||

    Skim is correct. Price inflation was low during the 90s and 00s, not in spite of monetary inflation, but BECAUSE of it. Without the expansion of the money supply during that time, we would have seen DEFLATION (not always a bad thing!) due to increased productivity of the information revolution. The FED / gov't still robbed you, even though price inflation seemed low. This is the problem with using price inflation as your source of information.

  • ||

    I find it funny that Mr. Chapman believes that since the Fed knows what happened in the 1970's that there is no way that they will repeat that mistake. Somehow this time they will see the price inflation before it becomes problematic and suck all of the excess money out of the economy. Only they will not be able to do so. It took time to but it there and it will take time to withdraw it without collapsing the economy. Instead they will do their best Obi Wan Kenobi impersonation and say, "This is not the inflation that you are looking for.", hoping to convince us that it does not exist for as long as possible. As in Star Wars, the weak minded will be fooled.

  • ||

    In other words, (price) inflation hasn't happened yet, so it won't happen ever, because it happened decades ago. Unless you use the 70s era inflation metric, in which case we are at 1970s levels, but we don't use those metrics anymore so no problem. Really, no problem.

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