How mainstream economists fought against inflation hawks
For that whole year, economists had been trying to explain to the inflation hawks that inflation fears are overdone.
-This condition is known as the liquidity trap - Mike Shedlock wrote in his blog. -Government's attempts to stimulate growth with loose monetary policies will fail. They are just keep pushing that gas pedal while the engine is in neutral mode.
-That looks sensible - said the inflation hawks and purchased short-term junk bonds..
-Things are different this time around - El Baradei added in a statement that was immediately reproduced by every financial site and broadcast live by CNBC. -We are in a new normal. Investors should be ready to settle for 3-4% returns that we offer at PIMCO.
-Makes sense - inflation hawks agreed and reduced their exposure to 30-year Treasuries.
-The real danger is still deflation - Nouriel Roubini told reporters and five minutes later his dire prediction was in the headlines. -The chance of a double-dip is 40%. Even if we avoid the double-dip, it will still feel like a deflationary recession.
-Sure, he is right - said the deflation hawks and sold most of their preferred stock.
-Even our foreign friends are expressing support for the US Treasury bonds - Hillary Clinton told reporters after a conversation with Chinese paper bug Wen Jiabao. -These are very safe and profitable investments and General David Petraeus agrees with me.
-Quite so - inflation hawks said to themselves and called their broker to place an order for oil futures contracts.
-These people are out of their minds - Paul Krugman complained in his New York Times column. -They are trying to fight inflation when they should be praying that our government is successful in creating one. They have never read "Conscience of a Liberal".
-Yes, indeed - inflation hawks agreed and invested several billion dollars in emerging market currencies.
The president did his best to reassure the markets. -Last year we passed an economic stimulus package - he announced in his weekly address. -This program was a success. We succeeded in creating or saving 120 million jobs. But our job is still half-done. We must lay the foundation for a self-sustained economic prosperity for the future generations.
-He will get things done - said inflation hawks and purchased gold, silver and rare earth metals.
-I have the exit strategy - Ben Bernanke told the FOMC committee. I am only keeping the rates at zero because the market conditions currently warrant more quantitative easing. They say I am just printing money but this is not true. We at the Fed call it expanding the Fed balance sheet.
-Even so - said inflation hawks and poured money into emerging market ETFs.
-Don't pay attention to deficits - Treasury secretary Tim Geithner reassured the public.-1.3 trillion sounds like a big deal, but it is hundred billion dollars less than last year.
-Sounds like chump change - inflation hawks agreed and dumped their remaining treasury bonds.
-Monetary policy does not cause inflation - former Fed chairman Alan Greenspan said in publicized comments. What causes it then? I ... I don't know. I did everything right. I had a bubble on my hands, which soon burst, so I offset it with another bubble and then it also burst. The task of the monetary policy now is to create the third bubble that will offset the second. Inflation? What nonsense!
-This is getting serious - said inflation hawks and purchased US equities which they previously disliked because of their unreasonable valuations.
-This is total, absolute nonsense - Krugman screamed from the window of his new Manhattan apartment. -I am still paying my mortgage and you clueless right-wing jerks are pushing for that dreadful thing called price stability? You stupid bond vigilantes, why do you have this unwarranted, paranoid fear of inflation? Besides, you don't even exist! I've proved it in my "Conscience of a Liberal"!
-We didn't know things were so bad - inflation hawks said and drove the price of gold to 1300 dollars an ounce.
-Bennie, another round of QE, please! - mainstream financial writers pleaded at once as unemployment stayed stubbornly at the level consistent with labor demand in a bubble economy. -Just one more QE and we'll get over this horrible period of low inflation!
-Time to flee - inflation hawks thought quietly and loaded their gold, stock certificates, food and commodities into a newly purchased Liberty boat. The anchor was raised. A few minutes later the vessel left the port and set sail for Cayman Islands.