Tuesday, June 23, 2009

Inflation Mythology

That former darling of the self-described fiscal conservatives who tipped this world into economic disaster, the Federal Reserve is coming up for grabs. Presently headed by Ben Bernanke, it will be in the unenviable position of the gold ring at the country fair carousel. Anything goes.

Of course, the Fed has been used to fend off disaster, and the policies it has used have been those that would produce immediate results. For long-term policies of choice, your financial mogul horde is going to fight back. For saving their hides, Bernanke is the new punching bag.

Federal Reserve Chairman Ben S. Bernanke will defend his unprecedented actions to prevent a financial collapse as debate on whether he should be reappointed begins.

Bernanke, whose term expires Jan. 31, faces lawmakers at a hearing this week on steps to aid Bank of America Corp.’s takeover of Merrill Lynch & Co. as Congress increasingly questions the Fed’s interventions. The session comes after a two-day meeting on monetary policy that starts today.

President Barack Obama has said the Fed chief has done an “extraordinary job” without committing to reappoint him. Treasury Secretary Timothy Geithner, in reference to a possible candidacy for Obama economic official Lawrence Summers, told a lawmaker last week it wasn’t “appropriate” to pledge that top advisers weren’t in the running for the job.

“The vultures are circling,” said David M. Jones, a former Fed economist who is president of DMJ Advisors LLC in Denver. Bernanke is “going to be on the defensive,” even after “turning confidence around” since the depths of the crisis, he predicted.

The evil policies that reputedly turned around the economy had an effect that strikes fear in those reputed hearts of the financial kingdom. They distribute wealth outside the inner ring. Worst of all, the general distribution of wealth brings an 'inflationary' effect.

That the inflation bugaboo was the most dreaded of all happenings came through in a reecent Wall Street Journal editorial.

We get worried, however, when Fed Governors begin to say that their days of fighting inflation are over. Fed Vice Chairman Roger Ferguson has been declaring the monetary equivalent of "mission accomplished" wherever he goes, most recently in a November 21 Chicago speech. "Inflation still seems more likely to move lower than to increase," Mr. Ferguson averred, making us wonder what prices he has been watching.

Perhaps none. Mr. Ferguson and Fed Governor Ben Bernanke seem preoccupied instead with productivity growth and what they call "the output gap."

The obsession with inflation by the ghouls at WSJ should be a good indicator that this is an effect we as working and wage-earning consumers should not fear. In inflation, your earning powers are worth more. Your debt shrinks, in real dollars. Toxic holdings even out in value with the 'good' holdings so corporate and investor debts diminish. Homes, savings, corporate real estate, all gain. The only losing factor in this scenario is the debt holder. The pile of gold in the mogul horde swimming pools loses value.

The last thing anyone wishing for economic justice needs to fear is inflation.

The legislators who are considering the next Federal Reserve chairmanship will be warned by financial interests that they have to do the right thing and stop recovery in its tracks before wealth can be allowed to follow value.

In order to continue toward prosperity, that is exactly what needs to happen.

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