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Those who cannot remember the past are condemned to repeat it.” - George Santayana
Deflation is back in the headlines. Quantitative easing (QE) is the call.
• Can the government and the Fed keep the money supply growing and prevent deflation?
• Is the deflation a real threat?
• How much QE is required?
• Or is QE irrelevant?
• Double-dip recession or staggering recovery?
• Gee, can’t we just depreciate the dollar again?
• From the Complaints bin: Hey, where’s the inflation you forecast?
• Stealth inflation. Deal with it.
Will the Fed hit the QE launch button soon to head off impending deflation? The question makes two assumptions. One, that the Fed faces a clear and present deflation threat. Two, that QE is an important policy tool to fight deflation. We find clues the answers in the outcome of the previous two games of the now 12-year-old deflation versus disinflation tournament. If we’ve learned anything after hearing deflation forecasts for a dozen years it’s this: when the Fed starts talking about deflation, grab your wallet. The money supply is about to take off. More …