The Inflation Chronicles

This is the new category I mentioned a few weeks ago that will need your participation. In the late 1990's, money manager Bill Fleckenstein started a reader-generated column called "The Mania Chronicles" to document the socioeconomic distortions of the stock market bubble (taxi drivers trading stocks, waiters writing stock tips on customer checks, etc). Same deal here.

Regular readers know I choose my words pretty carefully. I don't have much patience for the apocalyptic, almost gleeful rantings from some parts of the financial commentariat. But I'm extremely worried about what I'm seeing right now. It's really an extraordinary time. The challenge, particularly for those without much historical perspective, is to understand that the dollar falling almost every day is not normal; that oil at a new nominal and real all-time high was not inevitable; that gold just under $1000 is not a meaningless curiosity.

Policymakers who've failed need us to think this is all business as usual. That's the raison d’être for this sort of mendacity. Historical parallels are imperfect, but economic ones are often more instructive and valuable than other types. Among those who realize what's happening right now, Mark gleich Mark might be an appropriate greeting, sort of a secret-society mantra. If you understood the meaning of that phrase when I wrote about it in this 2006 post, you could have, at a minimum, protected yourself and preserved the value of your savings. Or this post from January, in which I urged the Fed to adopt a more austere tone and warned about the consequences of not doing so:

The alternative? Monetary policy as usual, with heaping portions of expediency and no doubt some taxpayer-financed bailouts, eventually sending oil well over $100, gold to $1000 and higher, and the dollar further into the crapper.

Check, check (almost...give it a few more hours), and check. What's remarkable is that there doesn't seem to have been any attempt to "scald the speculators" as Jude Wanniski once put it, or to root out the dollar shorts getting fat off one of the easiest trades in forex history. I don't think intervention in the gold or currency markets would be effective or sustainable, but the statist credentials of this bunch are such that I'm surprised nothing's been tried. It's almost as if policymakers are paralyzed by the realization of what's still to come, and they want to save ammo for...well, something. Scary stuff.

I recommend two field trips for Ben Bernanke and Hank Paulson. First, the cardboard countertops of the black-market currency changers in some emerging markets and post-conflict nations. Don't be insulted by the uproarious laughter there -- it's only business, nothing personal. Next, a trip to any major city in the western United States: Denver, Salt Lake City, Phoenix, Albuquerque. Start with a rental car and a c-note in the wallet, get on a highway, and drive. See how far you get. You know, I took a trip to the western U.S. two weeks ago. I was struck by how easy it is, in the eastern part of the country with mass transit and shorter distances, to overlook the impact of $3.50 gas. It's one thing to see a mother in a New York City supermarket explain to her kid that $5 is too much for a tiny plastic container of blueberries. It's quite another to drop sixty or seventy bucks at a gas station and barely get to the next city. When was the last time Ben and Hank got out of town?

I think it's possible we've entered a period that historians will regard one day as "The Great Inflation" or some variation of that. Let's make it easy for them, shall we? Email me any examples you come across -- personal anecdotes, articles from your local newspaper, etc. Examples are here, here, here, and here. Milk up 20% since last month? Let me know. Dentist in your town busted for removing metal fillings without telling patients? Send me the link. This blog has readers at BLS, Treasury, and the Fed, so this is your chance to tell them what you're seeing out there.