CIAO DATE: 05/2010
July 2009
American Enterprise Institute for Public Policy Research
The recent steps by the Federal Reserve to preempt deflation have--ironically and unexpectedly--prompted a surge in inflation fears both inside the United States and abroad, especially in China. Specifically, the Fed's measures to go beyond the stimulus inherent in a zero percent federal funds rate by purchasing Treasury and mortgage securities has conjured visions--especially in the eyes of major buyers of Treasury securities, China foremost--of massive money printing to underwrite trillions of dollars of additional government borrowing at low interest rates. As markets have shown, if that were the Fed's intention--which it decidedly is not--the effort would fail because excessive money printing--creating a money supply larger than the quantity of money demanded--would push up interest rates as inflation expectations rose.
Resource link: Inflation Scare: Crazy but Real [PDF] - 76K