Inflation on the Way?

Market analyst Paul Kasriel reports that Ben Bernanke of the Federal Reserve Board has been making noises that any feared deflation in the United States will be nipped in the bud by fearless inflation of the money supply.

Kasriel notes: "Now, I find it remarkable that a representative of the central bank to the world's largest net debtor nation would publicly make such a pledge. I don't, however, find it remarkable that this central bank would privately harbor such thoughts. After all, isn't a little (or maybe, a lot of) inflation what debtors want to bail them out of their financial obligations? Doesn't it imply less of a cut in your standard of living if you can pay back some unsuspecting sap in dollars that buy less? As a nation of net debtors, we want inflation. And this Fed…aims to please its domestic constituency." Renewed inflation combined with our current bottom-scraping interest rates will make holding dollar-denominated debt a very bad deal--which could mean further trouble for a foreign-investment-heavy American economy.