"Fed’s warn of possible inflation"

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No kidding?!?!?!  " Mr Plosser says, “To sum up, I am optimistic that the economy and the financial system will recover,” 

I could have said the same thing because it always does recover but recover to what?  Will it recover to a robust growing economy or to a leg-less economy?  

Their money printing presses have been burning up motors trying to print enough money to pay off whoever they've made arrangements to payoff.

Their favorite way to monetize debt is again going to raise its head.  I think we have discussed the good old Carter days of inflation.  I have a serious concern that if the inflation kicks in that we may wish for the Carter days. 

Add to the inflation the coming Cap and Trade energy inflation generator and we will wish that things were as calm as the carter days.

Fed’s Plosser Says Inflation to Increase, Warns of Complacency

By Vivien Lou Chen and Scott Lanman  Image/Details May 22

(Bloomberg) -- Federal Reserve Bank of Philadelphia President Charles Plosser said prices may rise 2.5 percent in 2011, a rate well above central bankers’ preferred range, and cautioned against complacency on inflation. “The economy may be at greater risk of inflation than the conventional wisdom indicates,” Plosser said in a speech yesterday in New York. “While inflation expectations appear to remain anchored, we should not become sanguine about our credibility. It can be easily lost.”

 

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Comments

I wonder

If this isn't a trial balloon.

Of course inflation is coming. Geezus ... you can't have the kind of "money printing" that they are doing and not have inflation. Yes, the deflationist argument has merit and we have seen some debt destruction. But falling prices are not necessarily deflation.
Inflation, OTOH, has an entire cycle to run and we have only witnessed half of that cycle. I will let Jens O. Parsons explain.

"Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money
expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular
general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part
of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the
money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is
faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring
money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays
and no one benefits. That is the full cycle of every inflation."
- Jens O. Parsons

currently we have deflation

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That's what NDD's posts are about. April implies Deflationary Bust deepens.

This is why Bernanke turned on the printing presses to the point the bearings burnt out.

Now, with the added possibility of a credit rating downgrade and even the D word (default), things might change. and the tightening of the money supply is another major worry....i.e. it could happen more quickly than the Fed's ability to respond...not a smooth ride in other words.

Won't happen

the tightening of the money supply is another major worry

is the true definition of deflation... but it won't happen. Why? Bernanke explains in his own words from 2002.

As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.

and the payoff quote

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Bernanke has been running the playbook just as he stated seven years ago. We will not experience a deflationary depression... not on his watch.

General fall in price levels is a Keynesian term. Government runs a numbers game ... i.e. - how many numbers can we fuck with to produce the desired outcome. CORE inflation .... WTF?

The problem comes up though

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When you have $650 trillion in potential debt, but only print $2 Trillion in Keynesian Stimulus to deal with it.

Now that debt was only potential (a good $400 trillion of it has already disappeared- turned out to be self-canceling circular CDSs)- but it's anybody's guess what the debt *really* was, and if the $2 Trillion will be enough to cover it.

My guess is that it won't- that the Bernanke supporters will see that it won't- that we will experience a deflationary depression because they can't print money anyplace close to fast enough- and that the deflationary depression will end with the world's biggest inflationary spike because they'll overshoot trying to end it.

And that we'll see all of that play out in the next 3 years, and it will cause Obama to be a one-term loser of a President, like Carter was.
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Executive compensation is inversely proportional to morality and ethics.

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Maximum jobs, not maximum profits.

Thats the problem with QE

Too little and your efforts fail. Too much and you overshoot into inflation hell.

Do it just right though ..... and ..... who are we kidding. These were the same cheerleaders who yammered about bringing the economy in for a soft landing, skirting a recession, economy is strong .... all bullshit.

They will fail miserably and destroy the currency in the process.

And on both ends

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Right now they're being far too optimistic & conservative. I suspect we will see that end this fall- dramatically enough to see them become pessimistic and liberal.

And it's the second that will truly destroy the currency. The first will remove it from being a reserve currency as it will turn out there isn't enough to take us back to a credit-free economy. The second, will devalue the currency very fast.

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Executive compensation is inversely proportional to morality and ethics.

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Maximum jobs, not maximum profits.

I should add this

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Fed considering buying up more MBSes and additional toxic waste debt to "spur" the economy.

Where is it written that moving a particular private sector debt that should be in default to the public sector helps the economy? Seriously. This is a fundamental claim and it dawned on me...where are the stats? Where are is the correlation that the S&L crisis and the government paying for the debacle increased employment, wages, the middle class?

The question still remains

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I'm not convinced they've printed enough money yet to avoid deflation.

We won't know that until this fall, when we see the beginnings of the second round wage/price spiral or not.

I'm even LESS convinced they can hit the right amount of printed money on the dot- especially when the effect is an indicator that lags 6-8 months behind the money creation.

Thus, it's my belief that we could end up with both- a deflationary spiral for a few months until all the debt is gone, followed by Weimar-Republic levels of inflation until the dollar is worth less than a Zimbabwean Baked Bean.

If that happens, say goodbye to the petrodollar as anybody's choice for reserve currency, and say hello to a return of private money creation in the Western United States in an attempt to avoid the economic implosion of the Eastern Seaboard.
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Executive compensation is inversely proportional to morality and ethics.

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Maximum jobs, not maximum profits.

Fed cannot account for $9 Trillion

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I thought I put this in an Instapopulist but can't find it. So I'll link to Economy in Crisis (one of our middle column must read sites) for the juice. It has Rep. Grayson (Freshman who clearly is trying to do a good job, nice to see!) asking how there is no accounting of so much money in a hearing.

I thought I covered this hearing, maybe not, but won't hurt anything is someone wants to go read through the testimony and overview it again. I believe it's this one.

Also, ya all, watch those Congressional hearings. While so very often we cannot get legislation, still they do invite testimony on the hill that is the truth very often and unfortunately these hearings and meetings do not get the press they should.