(AMERICAN CONSERVATIVE MOVEMENT) – Some people thought serious inflation would follow the bailouts of 2008-9. It didn’t, so some assume prices will remain in check again now. A false cry of wolf in the past, however, doesn’t mean that the wolves of inflation do not stalk the economy this time. As described below, macroeconomic and policy conditions are very different today and that’s important because I do not compare high levels of inflation to wolf pack attack lightly.
Financial markets suggest that the future path of prices remains unknown. Bond yields remain low by historical standards but frothy investments in cryptocurrencies and nonexistent art suggests that some investors want to buy anything other than bonds, which will drop in price if inflation, and hence nominal interest rates, rise. The buoyant real estate market also suggests that trouble looms as real estate tends to increase in price along with inflation, especially where rents can be easily and quickly increased.
Policymakers need to ask, what is worse, hyperinflation or global climate change? Hyperinflation or social injustice? Hyperinflation or war? The answer in each case, hands down, is hyperinflation, by which I mean rapid and accelerating increases in prices caused by new money growth that outstrips new money demand. Ironically, a bout of hyperinflation would probably accelerate global climate change, exacerbate social injustice, and increase the likelihood of major war.
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