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Hope and Change and Doom and Gloom

April 6th, 2011 - 1:10 pm

Inflation sucks. We know this. Inflation destroys savings, and without savings there can be no investments. No investments means no new jobs or economic growth. It also means no new productivity gains, which makes everyone richer in real terms.

There’s one other tiny little detail: Inflation makes you poorer, in very real terms. Six dollar gas, eight dollar milk, hundred dollar Levi’s 501s — they might be closer than you think. They might also be a short pause on the road to jillion dollar shoes.

Voters usually deal harshly with politicians who can’t or won’t tame it — look at what happened to Jimmy Carter in 1980, or to Sacramento after the inflation-inspired Tax Revolt of the year before.

These are my happy thoughts when I look at the mess Congress and the Fed have made of our finances. As I argued last week, only the weak job market seems to be keeping a lid on wage inflation. Its absence is about the only thing keeping 2011 from being worse — far worse — than 1979.

A crippling bout of stagflation may be on the way, perhaps as soon as this summer. It seems likely that the Fed will raise interest rates and launch the Good Ship QE3, in an attempt to disinflate consumer prices while re-inflating housing prices and maintaining inflation in equities. You read that right: I fully expect the Fed to try and disinflate, re-inflate and continue inflation all at once.

This is madness.

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