Right now, people are bidding up the prices of assets, especially in the stock market. I think of an asset boom as deferred inflation. Eventually, people will sell assets and buy goods and services, and that is when we will see the inflation.
Says Kling.
I doubt it. Assets will come down to match oil in the long term, and short term. The Fed cannot make inflation, it is a central bank and government has to devalue to get inflation. The Fed will tax, and tax again as needed. Tim Taylor is correct, we will go through a period of financial repression as the tax rebellion grows. There is a good chance we will do this worse than the Nixon Shock.
The danger the US faces the danger we should repeat and keep in mind, is a debt crisis. We print our own money, so the result may be a sharp inflation that wipes away the value of debt rather than an even more disruptive default, but the consequences will be almost as dire.
Yes, the danger is we will foul this up worse than Nixon, our politicians have been mis-educated. But there is a trade we can have, a purchase of real value to offset the inflation tax. We can get an independent Fed for 15 years, that is 15 years we are guaranteed the Fed will not go tax collecting. We have to understand the trade, John Cochrane does not have a handle on the idea, yet.
Fed taxes are highly deflationary, they do not even give us the choice of an inflation tax. The tax has dubious legality, though I think the Right to Coin includes the right to tax banks. But I am not the only wisdom, and eventually the legality of a Fed fiat tax will be adjudicated.
The problem is the little socialism of the central bank. It does not go away, it is in the Law. So the philosophers want that socialism to work, it doesn't work well, but it can be made to work a bit better.
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