Roger Lowenstein writes that being an ant is ok, but sometime soon we better become grasshoppers:
Credit and inflation are really two sides of the same coin. When credit expands, people have more money to pay for goods, and prices go up. The Federal Reserve Board has kept short-term interest rates at nearly zero, effectively jamming the credit-creation pedal through the floor. But it hasn’t persuaded people to take out their wallets or their credit cards, stoking fears of a Japan-like deflation. Core inflation (which measures price increases of everything but energy and food) has fallen to its lowest level in 44 years. As people pay back loans rather than take out new ones, they exert a drag on business.Keep in mind that this a deflation threat along with high unemployment levels. Anyway, when would Americans get back to being Americans and spend, spend, and spend, while taking on more debt in the process?
The Conference Board, which asks consumers every month whether they anticipate buying a home, a car or an appliance within the next six months, reported plummeting numbers in June. Consumers used to get their kicks from new Sub-Zero refrigerators; now they chip away at their balances. The turn is yet to come.So, ok, that is Lowenstein. Economics being economics, there has to be more than one interpretation, right? Of course, yes. Here is the libertarian Reason being sarcastic (so what's new, you ask?)
With inflation hawks questioning his every move and disloyal Fed underlings urging an interest rate hike, Bernanke finds himself unable to do the one thing he's spent his career preparing to do: save the world by throwing money at it.
Like many supergeniuses, Bernanke is in trouble because his plan is too brilliant. It really is possible to create inflation if you have the will. Just print another trillion or two, stop paying banks to keep that money in their vaults, and the country will be flooded with dollars. The problem is that the Fed keeps trying to micromanage the inflation, explode the monetary base without anybody noticing. But at some point you have to commit to devaluation of your currency. The moment to strike is now: Personal savings rates have been increasing for the last three months [all pdfs] measured. There are still millions of jobs to save or create. It's time to send a clear message: We're going to keep printing money until you stop saving it.
So, what do you say, Professor Krugman?
Like others, I’ve been warning that policy makers in the United States are defining normalcy down — accepting high unemployment and below-target inflation as just the way things are. It’s not just an obsession with inflation risks; it’s an abdication of responsibility for the economy, even if prices are falling rather than rising.
The passivity of the Bank of Japan offers an object lesson. The BOJ is now under political pressure? Why? Because it still sees no reason to act after fifteen years of deflation.
Is this a glimpse of the Fed’s future? That’s what I’m afraid of.