(summarised by Borjabrela)
The Bernanke Reflation
Fed Chairman Ben Bernanke told Congress that the Fed will do whatever it takes to stop the credit squeeze from becoming a recession. That's about as close as a central banker will get to saying he's thrown price stability to the wind. If inflation rises -as it now surely will- the Fed will worry about that after the econocmy is safely past the credit crunch.
Call it the Bernanke reflation, though it's more precise to call it the Fed's second inflation gamble of the decade. The first was Alan Greenspan's roll of the dice from 2003-2005, keeping interest rates too low for far too long in the aftermath of the dot-com bust. That spurred the first boom in commodity prices, as well as the subsidy for debt that led to the housing bubble and the credit mania whose collapse we are now dealing with. Mr. Bernanke was a Fed Governor during much of that time, and he seems to have learned his lessons all too well. He's now going all-in for round two.
Meanwhile, even the Phillips Curve is making a comeback. That's the notion -discredited in the 1970s- that there is a trade-off between inflation and economic growth. In its new version, argued by Fed Governor Frederic Mishkin, the Phillips Curve doesn't exist in the long term but does in the short term. Thus the Fed can afford to open the monetary flood gates now because the slower economy could lead to lower prices later this year. Then when the economy recovers, the Fed can afford to tighten money again.
The Americans aren't fooled by this, and they know their dollars buy less with each passing month. This explains their rising economic anxiety -and anger- better than trade or job losses do. Inflation is the great thief of the middle class.
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