"Inflation is always and everywhere a monetary phenomenon." That quote is often attributed to Milton Friedman.
Does the U.S. economy face inflation or defaltion? Signals abound either way. But which force is stronger? For inflation to be truly resurgent, we would have to see more than merely a rise in the price level. Institutional demand for commodity investments can do that all by itself. Inflation would require a wage-price spiral as employers raise worker wages to keep up with rising prices of goods, if only to stave off demand destruction for their own products.
Problem is, the destruction of demand has a deflationary effect, as producers would eventually reduce prices to find an equilibrium point at which a price signal would clear their goods from the market. Note that I said eventually, not immediately. Our immediate future is where we see the inflationary effects of low interest rates continuing to stimulate demand for money in the form of corporate and consumer credit. A surge in inflation would need to see a surge in the money supply to meet this demand, perhaps in the form of . . .
. . . dollar dumping on a global scale. If foreign holders of U.S. currency decide they don't need so many greenbacks anymore, all that U.S. currency will come flooding back to American shores. You'd think a flood on that scale would prompt the Fed to raise interest rates to make the dollar look attractive again, but the Fed may be thinking instead of Uncle Sam's unfunded liabilities. The temptation to inflate our way out of paying the Baby Boomers' Medicare bills in full may prove too strong to resist. Our governing class may have already decided to trade away dollar hegemony in exchange for an easy way out of the U.S. national debt time bomb.
Does the U.S. economy face inflation or defaltion? Signals abound either way. But which force is stronger? For inflation to be truly resurgent, we would have to see more than merely a rise in the price level. Institutional demand for commodity investments can do that all by itself. Inflation would require a wage-price spiral as employers raise worker wages to keep up with rising prices of goods, if only to stave off demand destruction for their own products.
Problem is, the destruction of demand has a deflationary effect, as producers would eventually reduce prices to find an equilibrium point at which a price signal would clear their goods from the market. Note that I said eventually, not immediately. Our immediate future is where we see the inflationary effects of low interest rates continuing to stimulate demand for money in the form of corporate and consumer credit. A surge in inflation would need to see a surge in the money supply to meet this demand, perhaps in the form of . . .
. . . dollar dumping on a global scale. If foreign holders of U.S. currency decide they don't need so many greenbacks anymore, all that U.S. currency will come flooding back to American shores. You'd think a flood on that scale would prompt the Fed to raise interest rates to make the dollar look attractive again, but the Fed may be thinking instead of Uncle Sam's unfunded liabilities. The temptation to inflate our way out of paying the Baby Boomers' Medicare bills in full may prove too strong to resist. Our governing class may have already decided to trade away dollar hegemony in exchange for an easy way out of the U.S. national debt time bomb.
