Feature

Inflation is around the next corner

Businesses in the U.S. are preparing to deploy cash hoards that could well fuel serious inflation, said Donald Losman in The American.

Donald Losman
The American

In happier times, said Donald Losman, two consecutive months of minuscule increases in the Consumer Price Index—a tenth of a percent in September; two-tenths in October—would warrant celebration of a “successful anti-inflation policy creating a relatively stable price level.” Today, however, those inflation stats are causing hand-wringing by Federal Reserve Board Chairman Ben Bernanke and many economic commentators, who fear the U.S. is entering the sort of long-term deflationary spiral that has gripped Japan for two decades. They’re wrong.

Businesses in the U.S. are preparing to deploy cash hoards that could well fuel serious inflation. The banks, thanks to “the Federal Reserve’s efforts to keep the economy afloat,” are sitting on about $1 trillion in excess reserves. When those reserves are finally lent out to customers, they could produce “major future increases in the money supply,” forcing prices upward. Likewise, the $2 trillion in cash held by nonfinancial companies “will eventually turn into spending and investing”—and, quite possibly, inflation. Anyone who believes the deflationary apocalypse is upon us should take heed: “This worm can turn very quickly indeed.”

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