Back in May, I wrote a three-part seriesexplaining why traditional views of inflation were almost certainly wrong. To make a longish story short, you get the answer by simply asking: cui bono?
That is to say: Who would benefit from inflation?
Since inflation is always and everywhere a monetary phenomenon, it is ultimately about who controls the money—and in our system, the money is controlled by those who would lose out to inflation.
I put this even more bluntly in a piece about hyperinflation:
Now ask yourself, who is in charge of monetary policy? Does the Federal Reserve seem principally concerned with the plight of underwater homeowners? Or is the Fed focused on the banks? Have politicians been resolute in their concern for the debt burden being imposed on future generations? Has the political elite of the United States turned against foreign power brokers, or do they see their interests and future goals as aligned?
David Leonhardt makes this point in his Sunday column:
David Levey, a former managing director at Moody’s and another critic of Fed inaction, points out that banks often have more to lose from inflation than from unemployment. Inflation reduces the future value of the money that their debtors—homeowners, car buyers, small businesses, and the like—will repay them.
“The Fed regional banks represent, in essence, the banking community, which tends to be very conservative and hawkish,” Mr. Levey says.
“Creditors don’t like inflation—it’s good for debtors.” Indeed, the three recent dissents all came from regional bank presidents: Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis, and Charles I. Plosser of Philadelphia.
Ironically, many of those who are currently worried that the Fed is going to create “runaway inflation” or “debase the dollar” advocate increased political control over the Fed. Of course, this would actually create the risk of runaway inflation by delivering monetary policy into the hands of politicians and taking it out of the hands of bankers. Politicians, as a rule, favor far looser monetary policies than central bankers.
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