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Interest Rates And Inflation

Friday, August 23, 2013 - 8:07 AM
 Who will benefit from higher rates?  See link for full discussion.


Read more at Mish's Global Economic Trend Analysis

Bloomberg writer Caroline Baum pinged me with her latest article Ivory Tower Types Fall for Bigger Inflation Fix complete with a veritable "Who's Who" of inflation proponents.


IMF economist Olivier Blanchard says "the benefits of a 4 percent inflation target might outweigh the costs"

Rogoff goes even further, recommending "a short burst of moderate inflation” -- two years of 6 percent inflation -- would speed the deleveraging process."

Mankiw emailed Baum "Think of it as the Fed announcing it will keep future short rates lower, for any given inflation rate, than it otherwise would have"

Baum offered a series of pertinent rebuttals:

"If a 6 percent inflation target would accelerate the deleveraging process, why stop there? Why not 8 percent? Or 10 percent? Wouldn’t that speed the process? You get the point."

Let's assume we reach Nirvana of 5% inflation. What would that do to food stamp costs, medical costs, and the price of gasoline? Not all things go up equally in price, or maybe in academic wonderland they do.

And what about interest on the national debt? Is it "inflating away" now at 2% inflation (with the long bond yielding 3.9% and the 10-year note yielding 2.9%)?

If inflation was 5% what would the rate be on the long bond? 7%?

In academic wonderland can we hold the rate to 0% while inflating away? If we can, then why is the long bond yielding 3.9% now?

What about jobs? If printing trillions did not create many jobs, then why would doubling it?  Or are we supposed to have government provide more fiscal stimulus too (because deficit spending of $1 trillion a year isn't enough?)

Read more at Mish's Global Economic Trend Analysis 

MikeMike327 posts since
Feb 22, 2010
Rep Points: 876
1. Friday, August 23, 2013 - 8:46 AM
Hope we would have learned the lessons from the 80's, lowering taxes for some, FICA taxes on the bottom 90% went from  6.13% in 1980 to 7.51% in 1988, the debt tripled, had 16% mtg's, 21% interest rates for business and high interest on our CD's. We know that kicking the ball down the road didn't work so something new might work. All we seem to do is complain and we don't work together. What has happened to us? 
Ally6770Ally6770930 posts since
Jan 16, 2010
Rep Points: 2,706
2. Friday, August 23, 2013 - 9:04 AM
Learning lessons has been a difficult issue throughout human history.

Which is why history repeats itself.  

And will continue to do so, until time is up.
MikeMike327 posts since
Feb 22, 2010
Rep Points: 876