Gov. Palin was right about the fed, the dollar and inflation

Those inflation yard birds are coming home to roost
*
In her keynote address at a trade-association convention in Phoenix last November, Sarah Palin criticized the Fed's misguided monetary policy and warned that the U.S. “shouldn’t be playing around with inflation.” Gov. Palin's warnings were quickly dismissed at the time by her political opponents, but inflation seems to be coming home to roost.

Charles Kadlec, a former Seligman & Co. managing director and investment strategist, who also served as economic advisor to Jack Kemp, effectively vindicates Gov. Plain in a forbes op-ed titled, "Higher Inflation Is On The Way":

Reported inflation is headed higher — much higher.

The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis.

When it arrives, the Federal Reserve and its defenders will call it “cost-push” inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.

The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970’s: a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.

[...]

The price of crude materials in the Producer Price Index (PPI) increased by 3.3% in January alone and now stands 21% above where it was just six months ago. Moreover, during the three months ending January, the rate of advance in the producer price indices for intermediate products, and finished goods have all accelerated into double digit annual rates of advance.

This upward adjustment of prices to the cheaper dollar is beginning to flow through to the consumer. For the past 3 months, the seasonally adjusted annualized rate of advance in the CPI is up to 3.9%, with food and energy prices – the items that have the greatest short-term impact on a family’s budget – accelerating to 3.1% and 27% over the same 3 months. Given the relative magnitudes of the dollar’s devaluation against gold, it is reasonable to expect consumer prices to be rising at a 5% plus annualized rate in the months ahead.

Fed Chairman Ben Bernanke’s assurance during last December’s interview on 60 Minutes that he was “100% certain” the Fed could control an outbreak of inflation above 2% was hubris...

[More]

- JP