The Dollar or Toilet Paper… Which is Shrinking Faster?

In the middle of last month, before Bernanke’s dream of QE2 became a reality, he described that “inflation is running at rates that are too low.” By “too low,” he meant of course that inflation is too low to keep artificially propping up asset prices, like the major market indices which in his opinion ought to give the US economy a shiny veneer of growth despite little underlying improvement in production.

Given this intended outcome, quantitative easing is at best a gimmicky strategy. What makes it far more pernicious though, is the weak premise that inflation is actually too low. When you consider the methods he’s relying upon for measuring it, you get the impression he wouldn’t note so much as a mild inflation uptick for a hot air balloon lifting off of the ground… but, we’ll explain more about measuring inflation below.

First, assuming Bernanke will in fact be successful in sparking inflation, how will a rising-prices environment impact the average wage-earner? Gonzalo Lira takes a closer look:

“Even in the best of economic times, wages and salaries do not rise in lockstep with an expanding economy. And we are currently not in an expanding economy. It is reasonable to assume that, during a period of steadily rising prices coupled with stagnant economic growth, wages and salaries will not rise for at least six months, if not longer… (more)