Posted by: rbbadger | November 18, 2009

Inflation and the price of transit

A common response of central banks to financial crises is to inflate the monetary supply, something which the Federal Reserve in the USA and the Bank of England did on quite a grand scale. 

As Milton Friedman taught us, inflation is always a monetary phenomenon.  The dire predictions of the Austrian economists came true in the 1970s when the USA was caught in an era of low growth, high unemployment, and high inflation.  It took a remarkable Fed chairman in the person of Paul Volcker to tame the beast.  He yanked up the interest rates above twenty percent and held them there.  It ultimately helped to put Jimmy Carter out of office.  Nevertheless, Reagan kept Chairman Volcker on as chair of the Fed. 

Ben Bernanke, an economist and scholar of the Great Depression, was determined that his Fed was not going to make the same mistakes that it made in the 1920s and 1930s when it abruptly diminished the supply of money.  I think it is a very fair question to ask if they expanded too much.  Inflation will catch up with us if it hasn’t already.  It is beginning to catch up with the UK.  The Telegraph points out that inflation is already starting to rear its ugly head in Britain

During Margaret Thatcher’s era, British Rail was denationalized.  Currently, a number of different companies including Sir Richard Branson’s Virgin Group operate rail services in Britain.  They are raising their unregulated fares some 15%.  In short, the market is catching up with the huge expansions to the monetary supply in Britain.   If it hasn’t hit the USA yet, it will soon.



  1. I have the same expectation in US economy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


%d bloggers like this: