Letters to the Editor
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rock and hard place
Because of earlier reckless policies by the Fed designed to help the GOP, and the even more reckless tax-cuts and borrowing-to-fund-a-totally-useless war (not useless to the M/I complex, but that's another discussion), the Fed now has nowhere to go.
For short-term political reasons, Bernanke will likely opt for inflation over recession. But that's a bad idea for any number of reasons. As just one example, the millions of boomers with IRA, 403b and 401k plans that don't include energy, commodity or metals funds (and most don't), are going to be in very deep trouble if inflation settles down for a long stay, as it looks to be doing. The market in equities was virtually flat for 10 years in the 70s when we endured a long bout of staglflation. Recessions allow these problems to unwind properly and then growth without serious inflation is possible again.
By delaying the inevitable day of reckoning by lowering interest rates, Bernanke is just going to make problems worse. A deep recession would be the best thing for the greatest number in the long run, however painful in the short-run. But that's not what we're going to get. We're going to get inflation.
Worse, we'll get both: stagflation.
Buckle your seat-belts.