A Quote by James Surowiecki
Of course, looking tough on inflation is part of any central banker's job description: if investors believe that inflation is going to get out of control, you end up with higher interest rates and capital flight, and a vicious circle quickly ensues.
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We know that inflation distorts economic behavior. In the 1970s, a combination of high tax rates and inflation prompted investors to flee production in favor of protection.
The higher interest and higher inflation is a vicious cycle.
The difficulty for Mr. Obama will be when the public sees where his decisions lead - higher inflation, higher interest rates, higher taxes, sluggish growth, and a jobless recovery.
Right now the long-term investors are telling us that they're not as concerned about inflation and so we're seeing these rates now move into the marketplace and out to the street - rates that individuals can get.
If you put tariffs in place, it creates inflation. If you put inflation in place, you have to raise interest rates. You raise interest rates, and stock markets shouldn't be so high.
What people today call inflation is not inflation, i.e., the increase in the quantity of money and money substitutes, but the general rise in commodity prices and wage rates which is the inevitable consequence of inflation.
The single biggest issue that I'm very sensitive to is inflation. I'm very concerned that this extended period where the interest rates were quite low and stimulated a lot of activity could breed inflation and create a problem for us.
A lot of people out there working hard and finally building up to getting a pretty good income. Higher tax rates on them, you know, the income rates going up, the dividend rates are going up, the capital gains rates all going up before health care kicks in.
No central banker would disagree with the proposition that inflation is primarily a monetary phenomenon. Not one of them will disagree that every inflation has been accompanied by a rapid increase in the quantity of money and every deflation by a decline in the quantity of money.
Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment - and older people are always advised to play it safe - yields a negative return when inflation is factored in.
It has been said that the Fed's job is to take the punch bowl away just as the party gets going, raising interest rates when the economy is growing too fast and inflation threatens.
I think we do need to try to not just rely on the central bank to, in its wisdom, adjust interest rates, but allow for people to avoid being exposed to inflation risk.
Here's why I think the public service jobs are almost unavoidable: When we have downturns in the economy - and we will, for we haven't repealed the business cycle - unemployment will build, yet we no longer have any safety net. What are we going to do? Unless we decide to pull out all the stops and lower interest rates immediately and risk turning a recession into wild inflation, we're going to have to figure out some way of providing some more, not job security, but employment security.
It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation or pays no income tax during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 100 percent income tax but doesn't seem to notice that 5 percent inflation is the economic equivalent.
What we also have to recognize is that the deficit levels that I'm inheriting, over a trillion dollars, coming out of last year, that that is unsustainable. At a certain point, other countries stop buying our debt, at a certain point, we'd end up having to raise interest rates, and it would end up creating more economic chaos and potentially inflation.
Because food and energy prices are volatile, it is often helpful to look at inflation excluding those two categories - known as core inflation - which is typically a better indicator of future overall inflation than recent readings of headline inflation.
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