Monday, April 06, 2009

Ben Bernanke's Big Inflation Gamble

It should be clear by now that deflation has everyone, world wide, scared to death. You can look at the charts on this site that show the massive increase in money supply, the Federal Reserve Balance sheet, and just about everything government.

I am old enough to remember the monster inflation of the late 70s and early 80s. Younger people might find it hard to believe that short term interest rates rose above 20 percent, and a the 30 year Treasury yielded more than 15 percent. 

Imagine being able to buy a million dollars worth of treasuries for less than $15,000. You could have bought a zero coupon treasury for that low price and had your million in the bank. 
Now Bernanke, the soft-spoken but authoritative academic, has redefined the Federal Reserve on the fly and exercised powers that Greenspan never dared touch. Bernanke's strategy is risky, and only time will determine whether he is being brave in averting a larger crisis, or reckless in unleashing inflation that could increase quickly and uncontrollably. Today, Bernanke's gamble looks like the worst possible alternative, apart from all the others.
Simon Johnson and James Kwak are very smart guys. They are excellent at explaining the current economic scenario and putting it into perspective. I suggest you take a good look at their current article.

The Radicalization of Ben Bernanke

Tagline--He is throwing trillions of dollars at the financial crisis. What happens if his gambles don't pay off?
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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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