All this money the Federal Reserve “printed” to bail out the banks and prop up the economy must eventually swing back as hyperinflation, particularly if the central bank engages in another round of easing as growth slows further or stalls. So goes the argument of the likes of stock broker/gold bug/Austrian School investor Peter Schiff. Ron Paul and House budget boss Paul Ryan have voiced similar concerns. We have plenty to worry about, but is hyperinflation near the top of the list?
Throughout the turmoil of the past five years, Treasuries and the dollar have remained safe havens for world investors. A weaker dollar would actually help American exporters and, combined with modest inflation, would, oops, lower our debt to the People’s Republic of China. The actual problem the world has faced has been deflation. Inflation is nearly nil in America from a macro standpoint.
The high inflation that Americans of a certain age remember, the 1970s, was caused by two major events: The oil-price shocks and a Federal Reserve that lacked the will and political support to stop it for fear of raising unemployment. When Jimmy Carter appointed Paul Volcker as Fed chair, and Ronald Reagan backed him, he induced a severe recession that killed the inflation for a generation.More