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Economics21st's avatar

Inflation is far from a straightforward subject, so take this as intuition.

I can't help feeling that the position we're in at the moment, of having had a substantial rise in prices of basics, is extremely unstable. I'm not convinced that any policy can maintain prices at the current level. Either a realistic price level is restored, meaning all the price rises which were only maintained by bubble economics are undone via a period of deflation, or the Fed goes all-in on debasing the currency to try to avoid it, and ends up causing hyperinflation.

I think this is a suitable analogy: Imagine there's a table and a length of elastic with a pen mark in the middle, which is aligned with a mark on the table. Someone starts pulling the left end of the elastic to the left, so the marks are no longer aligned. The Fed tries to realign the marks by pulling the right end of the elastic to the right to compensate. It might be able to keep them almost aligned for a while, but it gets harder over time to judge the right amount of force to use, and eventually the elastic snaps, with its mark shooting one way or the other at high speed.

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