We’re Not Threatened by Inflation but by Depression

So, central bankers are beginning to wonder if the US can pull off "another Volcker." Even Paul Volcker himself, who is still alive, doubts it. Today, too many people owe too much money and too many political favors. Put up rates to 18% today? Unthinkable. Cut 10% off government spending? Impossible.

But don't worry about it. Now, we're not threatened by inflation...but by depression!

It's fighting the depression that makes people worry. Smart investors and shrewd central bankers are afraid the depression-fighters will go too far...that they don't really know what they're doing.

Ben Bernanke is up for re-appointment. "Bernanke fights for 2nd term," says The Wall Street Journal. Does he know what he is doing? Well, no. He was wrong about the biggest single event in recent financial history. He thought the 2004-2007 super bubble was actually a period of "great moderation" brought about by his own superior monetary policies! He was still patting himself on the back when it blew up in his face.

And now, he still thinks the way to solve a problem caused by too much debt is to offer more debt. Of course, it didn't work for the Japanese. It won't work for us. But what we don't know is HOW it won't work.

That is big question. Will the feds simply retard a real recovery...with their bailouts and boondoggles...causing a long, slow motion depression, a la Japan? (In this case, gold may not be the one- way bet the smart money thinks.) Or will they tip the world into a hyperinflationary catastrophe, like the Weimar Republic in the '20s or Argentina in the '80s?

We don't know. No one knows. We wait to find out...

Bill Bonner
for The Daily Reckoning Australia

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Related Articles:

• Volcker, the Last Central Banker in America to Have Any Real Integrity
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• Depression: A Time of Falling Prices