Will Congress Be to Blame for Runaway Inflation?
Experts fear lawmakers could thwart efforts to halt rising prices.
With pundits, politicians, and regulators sounding the trumpets that our latest bout with recession is likely behind us, central banks and Treasury Departments around the world are looking forward at the daunting task of removing the various forms of stimulus -- which, in the estimation of former Merrill Lynch economist David Rosenberg, have contributed 100% of global economic growth this year.
European Central Bank Chief Jean-Claude Trichet even took out space in the Financial Times to lay out his vision for the eventual withdrawal of "enhanced credit support," which helped prop up local, and indeed global, financial markets.
Here at home, Bernanke's much maligned predecessor, Alan Greenspan, is voicing concern that Congress could complicate the Fed's already delicate task of keeping the economy grinding ahead without waking the sleeping giant of inflation.
According to Bloomberg, in a radio broadcast to clients in Tokyo, Greenspan said he doubts US politicians have the will to withdraw stimulus if unemployment remains stubbornly high.
And since Bernanke tossed the Fed's "independence" to the wind when he embroiled the Fed in the highly political bailouts of financial giants AIG (AIG), Citigroup (C), Fannie Mae (FNM), Freddie Mac (FRE), Goldman Sachs (GS) and, well, the entire American banking system, his ability to ignore rambling lectures and intense pressure from the economic simpletons on Capitol Hill will be minimal, at best.
If prices begin to tick up -- which they are yet to do thanks to the fundamental deflationary forces still hard at work -- Bernanke's narrow tightrope will shrink further still.
In order to keep inflation at bay, Bernanke's primary tool is raising interest rates, which thwarts economic growth by making borrowing more expensive for firms and individuals alike. But should he leave the floodgates of cheap money open too long, he risks igniting what many experts believe will eventually become runaway inflation.
For now, Bernanke has a bit of time on his side. The deflationary debt unwind is still going strong, as consumers and businesses get used to life after easy credit -- where cheap debt is no longer the engine of economic growth. This holiday from getting rid of the economy's training wheels, however, can't last forever.
If what has thus far been a recovery almost exclusively from massive government intervention into markets can transition into something more sustainable, Bernanke will be forced to man up and fight for the virtues of price stability. This will come at a heavy political cost.
But after all, isn't that what the central bank was created for in the first place?
The information on this website solely reflects the analysis of or opin=
=3D =3D3D ion about the performance of securities and financial markets by =
the wr=3D iter=3D3D s whose articles appear on the site. The views expresse=
d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi=
a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web=
site is intended to con=3D stitute a recom=3D3D mendation or advice address=
ed to an individual investor =3D or category of inve=3D3D stors to purchase=
, sell or hold any security, or to =3D take any action with re=3D3D spect t=
o the prospective movement of the securit=3D ies markets or to solicit t=3D=
3D he purchase or sale of any security. Any inv=3D estment decisions must b=
e made =3D3D by the reader either individually or in =3D consultation with =
his or her invest=3D3D ment professional. Minyanville write=3D rs and staff=
may trade or hold position=3D3D s in securities that are discuss=3D ed in =
articles appearing on the website. Wr=3D3D iters of articles are requir=3D =
ed to disclose whether they have a position in =3D3D any stock or fund disc=
us=3D sed in an article, but are not permitted to disclos=3D3D e the size o=
r direct=3D ion of the position. Nothing on this website is intende=3D3D d =
to solicit bus=3D iness of any kind for a writer's business or fund. Mi=
ny=3D3D anville mana=3D gement and staff as well as contributing writers wi=
ll not respo=3D3D nd to em=3D ails or other communications requesting inves=
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter