this informative video was linked on CalculatedRisk today.

http://www.youtube.com/watch?v=99Dzdc1H0wM

Which are the things everybody deals with day in and day out. My grocery bills are still going up. I paid more for gas today than I did a month ago. That's money out of my pocket. Just because economists don't choose to recognize those things as having an effect does not mean they don't exist. I am poorer today becuase of rising food and fuel prices than I was yesterday.

Food and Fuel are excluded because they are considered too 'volitile' to measure effectively. That's crap. They have an direct and constant effect on household budgets. I can postpone purchasing new clothes or a new tv if prices spike. I can't put off buying food or gasing up my car.

To transpose the 1930's in that film to present, note the smoke stacks and factories are in China. Note that China is stock piling commodities ahead of inflation, and there is no guarantee, even if the inflationary policy that the Fed has taken were to work, that the US consumer could afford those products, (since we are no longer in a vertical economy), or that the Chinese would continue to trade with us, assuming the dollar remains weak, and there is no real reason to expect the dollar to strenghten, unless interest rates move higher, and that would cut off the line of credit to home equity, so we are in a very different situation, pursuing a policy which didn't work then, and won't work now, for obvious reasons.

One thing that still perplexes me to this day is how when the price of gas dropped by more than 50% we never saw the kickback in the lowering of prices, specifically groceries. WHich rose in conjunction with oil prices and which were attributed to the higher cost of transportation from source to destination. Yet, when the bottom fell out of oil, nothing went down accordingly.

Guess when you realize people still need to eat, you can still charge them as much as you want.

While I don't have a problem with the concept of core inflation, I have a serious problem with the idea that it shows we don't need to be concerned about inflation. Food and energy are volatile, but they are a huge portion of consumer spending.

From a macro perspective, consider this. If you cut an eight slice pie into sixteen pieces, you don't have any more pie; each piece is worth less. The economy doesn't get any bigger just because we are dividing it by trillions of additional dollars. Only a fool would predict precise timing, but this reality cannot be avoided - not that I disagree with the administration's approach, and not that ANY semi-electable politician would have responded much differently.

Two giant rocket engines laying on the ground nose to nose, one representing the deflation caused by the economic crisis, and the other representing the inflation caused by the fed's quantitative easing.

Right now both rocket engines are firing at full blast, but neither is moving because they are pushing against each other. Ben Bernanake is standing next to the quantitative easing rocket saying, "we're watching the other rocket very carefully, and as soon as the other rocket starts to run out of fuel, I'll pull back the throttle on my rocket".

At the moment, the entire system is stationary, but if Ben's reaction time isn't quick when the other rocket runs out of fuel, it's going to jump suddenly.

Inflation may not be a problem now, but the situation is still tense when you look at the huge underlying forces being delicately balanced.

Yes, the so-called "core" inflation rate -- which excludes food and energy prices -- fell by 0.1 percent in May. The news supports the argument made by Paul Krugman and others that there is no reason to worry -- at this time -- that Obama's deficit spending will spawn an inflation apocalypse in the near future.

Frankly, I thought the folks who have been screaming "HYPERINFLATION IS NIGH" are a little overwrought, but I still wish Krugman had defined his terms in his anti-inflation article refuting the idea. We are experiencing a great deal of volatility in commodities which can lead to greater headline inflation over the long term.

From the Economist.com: (http://www.economist.com/finance/displayStory.cfm?story_id=13788599) David Ranson of Wainwright Economics says that the very high volatility of the oil price means it has a big impact on the headline consumer-prices index. Over the past three years, the correlation between the two has been 0.7 (where 1 is the maximum).

I am not concerned that we are going to turn into Zimbabwe overnight. Deflationary forces are simply too strong despite the huge amount of liquidity the Fed is pumping throughout the system. I also agree with Krugman that we are experiencing a liquidity trap similar to 90's era Japan, and like them, will enter a long period of stagflation, a possibility that Krugman, for whatever reason, refuses to recognize publicly. Whatever the reasoning, I certainly agree that hyperinflation is not something we should be worried about right now, but stagflation, which is pretty darned nasty all by itself, is definitely more of a possibility over the long and short term.

The prow of the ship is still above water! Never mind that pesky iceberg. We should definitely never address a problem prior to it becoming a crisis.

stagflation ... is definitely more of a possibility

Well, no, it's not, at least, not given your analysis, and not given current circumstances.

Stagflation is stagnation plus inflation. You can't have stagflation without stagnation and inflation at the same time.

Presently consumer prices are trending a bit less than zero, so there's no inflation. Also presently, the US economy is contracting, and neither expanding nor stagnating. In the absence of stagnation and inflation it's simply not possible to have the stagflation you're projecting for the near term.

Later on during the course of the Depression, who can tell? I certainly won't be giving it away.

Given the present circumstances it seems clear that new terminology is needed. For periods when there are contraction and deflation at the same time, like now, I recommend "defraction". For times of expansion and deflation, try using "explation", and for contraction and inflation, go for "intraction". These words may look funny, but I assure you, it's all good.

New buzzwords like these can be used to confuse your enemies, make people think you know something they don't, and allow you to heap scorn and derision on those who so richly deserve it. Consulting offers and attractive females will flock to you like crows to a cornfield and you can live happily ever after to the end of your days while the rest of civilization crumbles into ruins, the fools.

Inflation is no less inevitable than was the bursting of the credit bubble. That's why the ex spurts, including Krugman, are hedging their statements with caveats like "for the present": they know this to be true. Just as the timing of the credit bubble burst was uncertain, the timing of the onset of inflation is also uncertain. And the ex spurts are even uncertain about their uncertainties.

One thing you can know for sure is that while the Fed prints money, the inflationary time bomb ticks. It could behoove you to plan accordingly, and not place your trust with the National Economic Authorities who have so consistently proven themselves unworthy.