WSJ: Fed Officials Mull Inflation as a Fix

[jgarzik]

URL: http://online.wsj.com/article/SB10001424052748704689804575536391713801732.html?mod=WSJ_hp_mostpop_read

The Federal Reserve spent the past three decades getting inflation low and keeping it there. But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target.

The rationale is that getting inflation up even temporarily would push "real" interest rates—nominal rates minus inflation—down, encouraging consumers and businesses to save less and to spend or invest more.

Both inside and outside the Fed, though, such an approach is controversial. It could undermine the anti-inflation credibility the Fed won three decades ago by raising interest rates to double-digits to beat back late-1970s price surges. "It's a big mistake," said Allan Meltzer of Carnegie Mellon University, a central bank historian. "Higher inflation is not going to solve our problem. Any gain from that experience would be temporary," adding that the economy would suffer later.
[...]

[kiba]

Yum. Let inflate even when time are prosperous.

[ribuck]

... a controversial idea: lifting inflation above the Fed's informal target ...

In the United Kingdom they simply skipped the "controversy" bit.

The Bank of England keeps claiming that it is committed to monetary policy that will deliver 2% inflation (as if that isn't too much already!) while having delivered higher than that for 16 consecutive months now.

[db]

save less and to spend or invest more

Huh? Investing is saving.

[hugolp]

The "funny" part is that the Fed argued that if Ron Paul's Audit the Fed bill passed it would politicize the Fed and it would led to inflation...

The bill did not pass and now they are creating inflation on their own.

Professional liers.

[MoonShadow]

save less and to spend or invest more

Huh? Investing is saving.

Not in the current climate.

[MoonShadow]

The Federal Reserve spent the past three decades getting inflation low and keeping it there.

That's funny, because I seem to recall a great deal of inflation from about 1995 to 2007.

[kiba]

The Federal Reserve spent the past three decades getting inflation low and keeping it there.

That's funny, because I seem to recall a great deal of inflation from about 1995 to 2007.

There are low inflation, so you did see a great deal of inflation. It's not mutually exclusive.

[MoonShadow]

The Federal Reserve spent the past three decades getting inflation low and keeping it there.

That's funny, because I seem to recall a great deal of inflation from about 1995 to 2007.

There are low inflation, so you did see a great deal of inflation. It's not mutually exclusive.

I meant more than the standard "low" 2-3% annually.  All of the recent bubbles had a fedreserve induced inflation componet to them.  The tech bubble, the real estate bubble and the stock bubble were all linked to inflation in some capacity.  Now we are in a state of deflation as a result of those bubbles popping, and there are still people who claim that inflation has been under control this entire time?

[kiba]

The Federal Reserve spent the past three decades getting inflation low and keeping it there.

That's funny, because I seem to recall a great deal of inflation from about 1995 to 2007.

There are low inflation, so you did see a great deal of inflation. It's not mutually exclusive.

I meant more than the standard "low" 2-3% annually.  All of the recent bubbles had a fedreserve induced inflation componet to them.  The tech bubble, the real estate bubble and the stock bubble were all linked to inflation in some capacity.  Now we are in a state of deflation as a result of those bubbles popping, and there are still people who claim that inflation has been under control this entire time?

That's a lot of bubbles in one decade.

[db]

Huh? Investing is saving.

Not in the current climate.

In theory I guess it is possible to save without investing. (Store and don't use some physical good that is not expected to increase in price.) But how do you invest without saving?

[FreeMoney]

Huh? Investing is saving.

Not in the current climate.

In theory I guess it is possible to save without investing. (Store and don't use some physical good that is not expected to increase in price.) But how do you invest without saving?

If you borrowed and bought stocks I don't think that would be saving, but surely it would be investing.
 

[db]

If you borrowed and bought stocks I don't think that would be saving, but surely it would be investing.

The lender is doing the saving. Intermediaries don't change that there is just as much saving at the beginning of the chain as there is investing at the end.

[FreeMoney]

If you borrowed and bought stocks I don't think that would be saving, but surely it would be investing.

The lender is doing the saving. Intermediaries don't change that there is just as much saving at the beginning of the chain as there is investing at the end.

That's a good point.

One person could invest without saving by borrowing, but somewhere, someone had to do the saving.

[hugolp]

If you borrowed and bought stocks I don't think that would be saving, but surely it would be investing.

The lender is doing the saving. Intermediaries don't change that there is just as much saving at the beginning of the chain as there is investing at the end.

That's a good point.

One person could invest without saving by borrowing, but somewhere, someone had to do the saving.

This would be true without the central bank. In the present system this is not true, since credit is created through inflation.

[FreeMoney]

If you borrowed and bought stocks I don't think that would be saving, but surely it would be investing.

The lender is doing the saving. Intermediaries don't change that there is just as much saving at the beginning of the chain as there is investing at the end.

That's a good point.

One person could invest without saving by borrowing, but somewhere, someone had to do the saving.

This would be true without the central bank. In the present system this is not true, since credit is created through inflation.

In a very broad sense it is still true. The dollar would be worth exactly zero if people weren't doing work and trying to save the value in dollars. In this case it isn't the borrower or the lender doing the saving, it is some dupe (most of us here) working a job and holding dollars for a while.