We are not experiencing inflation using the hedonically smoothed metrics the Fed uses. However, if you look at inflation on food, fuel, education, and healthcare, all of which represent a very sizeable portion of the average American's budget, then inflation is running at 5-8%. So yes, we are experiencing inflation and it will continue to get worse.
As I said, I don't think we'll experience hyper-inflation, because I think we'll get another Volcker once inflation of the normal variety starts to rage. Before it becomes very apparent that Bernanke has wound spring up very tight, we'll have to see money velocity (M2) start to spike upwards. Right now, it is collapsing. Money velocity is now at a level that is the lowest recorded in all the years that FRED started tracking the metrics in 1959. Money velocity at those levels is recessionary. GDP readings below 2% are generally considered stall speed as well, because when we get readings like that, we've almost always been in a recession or about to start one. Q4 GDP final reading was 0.4%. Does that sound like a recovery to you? Lower GDP and trending down? Hmm. Not good.
Anyway, inflation is tied to money velocity. We'll get inflation that even you and Bernanke will recognize, but we're going to need money velocity to start to trend upwards for that to happen. Usually, that happens when people run the banks and put their money in hard assets. Cyprus could be a catalyst for that, if it spreads, but I'm not certain that would spread to the US. Despite the banking corruption here, we still have a few safeguards left. But if Obama, Bernanke, and Geithner announce a tax levy on depositors, then we'll have utter pandemonium. That I can guarantee. |
