The American Spectator : The Spectacle Blog : Obamaflation Watch

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As readers may know, I've been tracking the likelyhood of inflation on this site, and in today's WSJ Arthur Laffer lays out the case for why we're at risk of inflation, and predicts it's going to get pretty bad:

It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.

He also provides this illustration of the stunning increase in the money supply, "the largest increase in the past 50 years by a factor of 10."

View all comments (15) | Leave a comment

ncatty| 6.10.09 @ 10:35AM

I hope there is an upside to hyper-inflation. What were those things called, certificates of deposit?

JRS| 6.10.09 @ 10:39AM

Remember the basic economic formula MV=PY, with M=money supply, V=velocity, P=price level and Y is real GDP. W/ the credit cruch the bottom quickly fell out of velocity and w/ prices sort of sticky, GDP as has been seen is in real danger. While questionable, this was the desire of programs such as the Fed's Talf program. How are the results: they've cut AAA credit spreads from around L+500 at the peak to some recent ones getting done at L+70, not even relying on Talf. The big problem will be once the economy eventually picks back up, how quickly will they notice and how quickly will they dial M back in (as V picks up) to avoid rampant inflation. The second and bigger concern is will the fed be coerced to print money to help pay for all of the Comrade's programs.

Tim| 6.10.09 @ 12:15PM

Inflation destroys debt and wealth. This is probably fine with the Obama crowd, rob from the rich give to the poor.
Of course I know it's not that simple, but to simple marxists it may appear so.

ds80| 6.10.09 @ 1:18PM

ncatty ... an upside to hyper-inflation? Surely you are joking.

In 1923 Weimar Germany, prices doubled every two days.
In 1946 Hungary, prices doubled every 15 hours.
2008 Zimbabwe: prices doubled every 24 hours.

What CD term do you propose? 6 months? Hah!
1 month? 1 day? Yeah, right.

Oldefarte| 6.10.09 @ 1:22PM

Again, Obama/Democrats are not spending to revive our economy----they're spending to provide welfare to their constituents. Nevertheless, it's huge governmental spending, and the volume of it will end with humongous inflation AND governmental tax increases [to pay for the governmental spending], the likes of which we have never before seen before. This is what Obama meant when he told Joe the Plumber about WEALTH REDISTRIBUTION, folks [that not enough voters listened to or understood] !!!!!!

Missy| 6.10.09 @ 2:08PM

There's not going to be any wealth left to spread around. The democrats are killing the Golden Goose.
Obama's a doofas.

Tim| 6.10.09 @ 2:13PM

This is the solution to the national debt and social security failure. In 2030 the average retiree will draw $3,450 a month from Social security but a cheeseburger happy meal will cost a $8,000. A minimum wage job will be more than a corporate lawyer makes now.

Angel| 6.10.09 @ 2:14PM

Watch for our resident troll, Bob, to explain to us in his best professorial manner (with charts, graphs, etc.) that Obama is actually fiscally responsible, and as a 'moderate' republican he is firmly in Obama's corner.

Oh, and of course--it's all Bush's fault.

Tim| 6.10.09 @ 2:26PM

Angel they have been much, much better about troll control since last week when a bunch of us threatened mutiny. I have to give them credit.

ncatty| 6.10.09 @ 2:37PM

Of course I was joking.

sestamibi| 6.10.09 @ 2:43PM

Oldefarte said: "This is what Obama meant when he told Joe the Plumber about WEALTH REDISTRIBUTION, folks [that not enough voters listened to or understood] !!!!!!

No that's not right--the unpleasant truth is that voters DID listen and understand, and they made this choice consciously. Let us concede that this is in fact the majority opinion in America today, and act accordingly.

Handy| 6.10.09 @ 3:10PM

Actually, the proper equation is M*V = P*Q, where M is Money Supply, V is Velocity (turnover), P is the Price Level and Q is the Quantity of transactions. Both M*V and P*Q equal GDP, or Y in ncatty's formulation.

M*V = P*Q = Y is correct.