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The Obama Inflation?

The AP is reporting that the Congressional Budget Office will project a $1.2 trillion annual deficit for 2009, more than double the $455 billion record set last year. Yesterday, Barack Obama predicted "trillion-dollar deficits for years to come." I really wonder when we're going to start having a serious national debate about inflation. When the Federal Reserve decided to lower interest rates to near zero last month, the FOMC statement said that, "In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters." In their judgment, the main focus should be on jump-starting the economy, and they'll deal with price stability down the road if they need to. But when the government is simultaneously employing expansionary monetary and fiscal policy, issuing an unprecedented level of debt, and introducing more and more government programs without any plans to pay for them, it will have to print a massive amount of money, and I have a difficult time seeing how serious inflation can be avoided. And historically, inflation has often proved harder to lick than a simple economic downturn. Most recently, we had stagflation in the 1970s, and Paul Volker had to choke us into a major recession in the early 1980s to get inflation under control before the Reagan tax cuts kicked in and the economy was off to the races. People may make counterarguments as to whay we shouldn't be worried about inflation, but given the potential consequences, it should be a part of the conversation.

Comments

Martin| 1.7.09 @ 11:31AM

Quite right. The Fed's been overexpanding money supply since 1995; we didn't get price inflation because Internet/globalisation suppressed it artificially. Now fiscal and monetary stimulus have made matters worse. I can't see how we will avoid at least double-digit inflation by about mid-2010. The entire FOMC, and especially Bernanke, should be asked to resign immediately.

Captain America| 1.7.09 @ 1:24PM

Is this a case of the "remedy" being worse than the abnormality? Absolutely.

saleboter| 1.7.09 @ 3:46PM

The only reason we do not have inflation now is the cheap goods imported from overseas and the chinese buying up our debt. If the economy recovers (if) look for inflation at 10% or better.

ugh

Terrence Kwasha| 2.13.09 @ 7:51AM

The government is about to dump 800 billion dollars into the economy and no one has said a word about inflation. What the heck is going on?

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