Thursday, March 26, 2009

Big Inflation Virtually Inevitable

The Federal Government's hell-bent for leather desire to thaw the credit markets has now put the worry of inflation front and center.  When the cryptic former Federal Reserve Chairman Paul Volcker begins to warn of "all these dollars coming tumbling down on us" if we continue the easy money, we should pay attention.  At a recent Wall Street Journal conference Volcker, who successfully tamed the inflationary cycle of the 1960s and 1970s, make this critique of the Federal Reserve: "I get a little nervous when I see the Federal Reserve announcements that they want to have the amount of inflation that's conducive to recovery.  I don't know what 'the amount of inflation that's conducive to recovery' would be appropriate.  I'd much rather they say that they want to maintain stability in the currency, which is conducive to confidence and recovery."

In other words, when the government wants to stimulate the economy, it should do it with its ability to tax, borrow and spend.  The Federal Reserve, in Volcker's world, has but one job, maintain the value of the currency.  Which Volcker seems to think it is not doing, nor does Warren Buffet, who predicts the "onslaught of inflation" in his 2008 letter to his shareholders.

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