So true. That's why I read the FT, where it is on front page and above the fold: "Fed purchase plan stuns investors." Then on page 3 Krishna Guha has a great analysis called "Outlook promts Fed aggression."

Umm, top story in the Wall Street Journal that was delivered to my apartment this morning: "Fed in Bond-Buying Binge to Spur Growth."

Also the FT editorialized this morning: Geithner needs to be given a chance

http://www.ft.com/cms/s/0/cd331e74-13e7-11de-9e32-0000779fd2ac.html

Secret: "Assets" that are worthless (or so low as to be toxic to be revealed) are several times the GDP in all probability. We can't pay them back.

The cure is also deadly: rampant inflation. Patients who get this infection usually go into cardiac arrest, although some recover with ample use of electroshock paddles (repudiation of the debt).

Geither/Bernake have chosen inflation rather than deflation, but that will never be admitted. This is good for debtors, but wipes out savers and those on fixed incomes. Nothing is better than paying debts with cheaper currency than when borrowed, for the debtors.

In this case however, there may not be enough sovereign money printing (that the world will tolerate) to pull off the inflationary strategy. If this doesn't work, then sovereign default on US debt is waiting in the wings to make a third act appearance. End of the US$ as the standard medium of world trade and finance. Then, you must learn to live on your income/productivity to pay the bills or you starve.

So run out and spend on your credit cards up to the limit, and prepare to benefit from being a debtor in Zimbabwe inflation.

Actually, I have a paper copy of the Post in front of me as well, and the front-page, above the fold article is: "Fed to Pump $1.2 Trillion Into Markets."

Odd that the online editors didn't have the same priorities.

The commodity markets noticed. Oil is up 6%.

Geither/Bernake have chosen inflation rather than deflation, but that will never be admitted. This is good for debtors, but wipes out savers and those on fixed incomes.

Jim: Let's not exaggerate. No saver is going to be "wiped out" unless we have hyperinflation. And also, one of the reasons it is desirable to induce some inflation via the printing press is to get people to spend: sitting on your money when it's losing value isn't smart. Quantitative easing diminishes the ability of people to sit on their money. In our current predicament, that's a good thing, unless one is a fan of double digit unemployment. Also, Social Security recipients get a COLA adjustment.

Jasper: Yeah, some exaggeration, but not too much.

Inflation, once ignited, is very difficult to control (ask Paul Volker). But today's debt mountain is very different than the 1970s-early 80s. And we have lost our manufacturing base so workers are now a commodity rather than an group that benefits from rising wages in inflation.

We just can't compare this situation to anythng historical because of structural changes in the US economy (and the world). Wages in this decade are essentially flat: workers saw no boom in income. When rent or gas or food inflates, (and healthcare continues to explode in price), 90% of citizens will be hurt, hurt bad.

COLA will never keep fixed income retirees whole, because it is based on 'core' inflation - which excludes the highly inflatable things: food and energy. The same thing will happen with service workers and those in wage-stagnant jobs.

Uh, you do realize this is your second post of the day on the AIG bonuses, right?

Elaborating on what 'TL' mentioned - the real trillion dollar question is how this move stokes 'Oil'. Geo-politically, higher the oil price; harder it is for Obama and Hillary to manage Russia, Iran and Venezuela. Stronger Saudi war chest is the only positive there because then they can further underwrite losses in Citi and other Wall Street sucker banks.

But aside of that Geo-political menace, domestically things will be good for Obama. You see that Nobel Prize winning Energy Secretary Chu; he starts smiling whenever Oil goes up. Selling and establishing Alternative Energy industry tasks of his becomes easier then. Spring starts arriving in Alternative Energy industry where it is all doom and gloom now.

Inflation, once ignited, is very difficult to control (ask Paul Volker).

I agree, but there's scant evidence of inflation right now. We've experienced a massive contraction in the effective money supply, so moderate quantitative easing represents an exercise in money supply replacement, not a net increase.

Wages in this decade are essentially flat: workers saw no boom in income.

Deflation would mean that incomes aren't merely flat, but that they're falling. My understanding is that we've actually seen substantial evidence of falling wages over the past year (heck, my own brother's employer -- a software firm -- made everybody take a 5% cut). This is pretty scary, as wages have generally been sticky since the Great Depression. So yeah, I'm with Bernanke on this one: We can't afford to let the economy fall into a deflationary spiral. We daren't.

COLA will never keep fixed income retirees whole, because it is based on 'core' inflation - which excludes the highly inflatable things: food and energy.

I agree, but there are no easy choices to be had. Formulating policy to help people on fixed incomes -- by minimizing inflation right now - is a more dangerous course of action than inducing moderate inflation.

The same thing will happen with service workers and those in wage-stagnant jobs.

Well, I'd suggest dodging the bullet of deflation might be a first good step at helping low-paid workers, because most of them are debtors. But obviously once the economy is growing again various substantive measures (UHC, greater tax code progressivity, etc.) ought to be taken to help the non-wealthy.

The cure is also deadly: rampant inflation.

JimPortlandOR is absolutely correct. I don't think anyone can stop Obama et al and he best thing you can do at this point is understand what's happening and take responsibility for your own well being. Dollar denominated investments will suffer. Your strategy now should be to shift investments into non-dollar denominated investments in the next few months to protect any money you may have.

If you wish to get wealthy off of these events, shift into non-denominated leveraged investments such as margined stocks of oil companies with large proven reserves, long-term gold contracts for deferred delivery or rental real estate, just to name a few.

We won't see significant inflation with double digit unemployment. High unemployment represents unused productive capacity. In that situation, producers can react to increased demand by increasing production, i.e. putting people back to work. It's only when demand exceeds supply that prices rise. Increased demand should only trigger unemployment when the economy is operating near capacity, i.e. full employment.

(I know monetarists like to point to the stagflation of the 70's as a refutation of Philip's Law, but that seems explainable in terms of supply limitations, namely oil.)

the fed couldn't do anything about short term interest rates since they were at zero.

yesterdays action will lower the long term interest rates (by printing money and the government monetizing itself as you say).

but the fed can still do something about interest and that's at least half the story of what quantitative easing is about: lowering long term rates on mortgages and business borrowing

the other half is about devaluing the dollar and increasing the money supply to fend off deflation and create some inflation. my guess is that bernanke would be happy with 2-3% inflation. this is a dangerous game, but deflation is a worse prospect.

None of the moved announced yesterday are inflationary. The fed will simply swap one form of dollar-denominated financial asset for another, in an attempt to lower long term interest rates and spur lending. (Whether it will work - it won't, just like it didn't when Japan tried it - is another question.) It has no effect on aggregate demand, or on private balance sheets, or anything. The effect, if anything is deflationary, since (if successful) it would reduce the income of savers. If the fed came in and replaced your savings account paying 3% with a checking account paying 0%, would you think of that as inflationary, or "printing money"? Because that's what they're doing...

The Blog Justoneminute notes that your reaction is rather similar to the reaction of two others on the "Journo-list" and one other blogger who might be.

http://justoneminute.typepad.com/main/2009/03/who-doesnt-love-the-journolist.html

This seems to contradict the the suggestion that it isn't an echo chamber.

What is your reaction to Justoneminute's observation?

I just have to second David's endorsement of the Financial Times. Best paper available in this country- so much better than the WSJ it's breathtaking. And the editorial page is sane!