The Inflation Menace

I’ve joked with several friends that we should create a betting pool to predict the top inflation rate over the next few years. My bet is that inflation will top out at 11 percent (on an annual track). Some of my friends think I’m playing Pollyanna.

While it’s impossible to figure out precisely how the future will play out, due to the many factors and the inherent unpredictability of human choices, Paul Hsieh has brought forth some uncomfortable data, brought to us via Todd Zywicki, via Peter Robinson, via Andy Kessler, from the Federal Reserve Bank of Saint Louis. The upshot is that the number of dollars has skyrocketed in the last few months. As in, roughly doubled.

Zywicki argues — and I’ve heard this before — that so far we have not seen the increased money translate to high rates of inflation because “‘velocity’ of money has remained low — people and banks are hoarding money, rather than spending, borrowing, and lending it.”

But I don’t see how its possible to avoid serious inflation at some point, quite possibly amidst an economic recession.