Watch Bernanke’s ‘Little’ Inflation Capsize U.S.

By Amity Shlaes, author of "The Forgotten Man: A New History of the Great Depression" and "The Greedy Hand: Why Taxes Drive Americans Crazy":

A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden....


The reason that markets haven’t jumped yet is that the last great inflation and correction happened in the late 1970s and early 1980s, just long enough ago that most adults in the financial markets don’t remember it.

We can debate whether today’s challenge resembles that faced in the early 1980s, or something worse. But one thing is clear: pretty soon, we’ll all be in deep water. 
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Link: http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html