The Inflation Is Coming, The Inflation Is Coming (?)

Citigroup management gets a great deal; you and I not so much.  Consensus on right sizing the fiscal stimulus increases by about $100bn per week.  The rest of the world drags its feet on anything approaching an appropriate set of monetary and fiscal policies (yes, I’m talking about the eurozone again.)  Where does this all point?

It points to inflation.  Inflation has many drawbacks and brings its own serious risks, but inflation is better than the alternative which, as President-Elect Obama said on Saturday, is now a deflationary spiral (falling wages and prices).  The policymakers are going all in and the question now, we argue in a piece on WSJ.com this morning, is whether inflation still lies within their reach.

9 responses to “The Inflation Is Coming, The Inflation Is Coming (?)

  1. From macroeconomic point of view and to bring stability back it is okay. But there should be some tough measures taken for future. Strict regulations and tough punishments. Also, govt should take all the bonuses paid to executives from bailed out institution since 2003 (Citi is now prime candidate). This will help calm taxpayers and dodge political mudsledging. In fact, there should be some of executives already in Jail. Start with rating agencies’ CEOs. Once they have to defend themselves all pieces of this puzzle (who else was at fault) will fall into place. Government has to show to taxpayers that these greedy executives are paying the high price.

    In general, inflation is kind of re-distribution of money. It is unfair to taxpayers (and savers like me) that our buying power goes down. Why should we bail out (redistribute money) to these greedy institutions? when they were profiting they didn’t share a dime.

    Also, from Citi’s deal, there is not really any upside for govt or taxpayers apart from 8% in dividend and $7B in prefered stocks. If asset prices recover Citi has all the upside with only limited downside.

  2. I have other aaproach. What markets don’t like is “Uncertainity”.
    Since this crisis is of historic proportions, why doesn’t Govt assess real value of assets held by top 20 finacial institutions in the country? Isn’t this is job of regulators? Once that is done, project losses of additional 20%. And then market will know exactly what each company is holding. Otherwise speculations and rumours will just drive market down. Nothing wil help.

    At the same time keep pumping money in the system but don’t lower the lending standards to create new bubbles.

  3. How long before the dollar is worthless?

  4. What is a reasonable level of inflation that the US can live with?

    I guess if US continues to print currency, very soon the dollar will be worthless. So what is the ball park percentage of inflation that is safe? 2%, 5% 10% or some other figure?

    What happens to the trillions held by China and Japan in this scenario? Do they start selling it gradually and move to gold or yens?

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  7. Solving a localised problem in housing by using inflation has three problems 1 it is inefficient – the cost to every asset holder is greater than the advantage to every liability holder. (Check the nation’s Balance sheet – there are more assets than liabilities.)
    2 In the short term it will make everything worse. The property market will not recover until the number of sellers decline. But cost inflation will drive more people to the market. And you cannot have asset inflation without cost inflation. Morgagees will respond to inflation by trying to increase interest rates. Think what that will do to the housing market.
    3 Curing the inflation will create the recession that inflating the economy was designed to avoid. Show me in history where inflation was slain without pain.

  8. I’m new to all this, but although the public is conditioned to see inflation as a bad thing, particularly if you’re living on a fixed income, it will have a positive effect on both ends of the problem. Inflation will simultaneously increase the value of fixed assets, while essentially devaluing existing debt. As long as wages keep up with prices, inflation may be part of the solution.

  9. Shannon Melton

    Paco Ahlgren has been writing a lot about the weakening dollar, Treasuries, and inflation.

    http://experienceiseverything.blogspot.com/2009/01/is-fed-buying-treasuries.html