Except for 2007, inflation has not been above 4% since 1990. ftp://ftp.bls.gov/pub/special..../cpiai.txt

Isn't it way past time for the WaPo to stop obsessing about this phantom menace?

unemployed resources get put to use, so the increased demand means more stuff produced at no inflation. that's the point of demand management. inflation depends on demand exceeding supply, and apparently we are far from that.

but clearly the tripling of the monetary base, so far, has had no impact on prices. this is the liquidity trap. interesting quote the other day "People that don't need money can borrow all they want." Credit scores on home ownership have skyrocketed. Soon we will get the cycle to start over, with the progressives arguing that mortgage lending is racist, as they did in the 80s and 90s, and forcing lenders to lower standards. Then we will get another housing bubble, which as Krugman pointed out in 2002, may be the only thing the Fed can do to get the economy going. sigh.

had nothing to do with "forcing lenders to lower standards" and everything to do with the crimogenic recapture of the housing industry by short-term operators earning billions of dollars of temporary gains from newly-allowed predatory and suicide lending practices.

All this was a virtuous cycle that pushed home prices up as the cost of money went down.

The price rise was sustainable 2002-2003 since it came largely from the Bush tax cuts and lower interest rates, plus the general steady if slow recovery from the dotcom recession. The price rise became a bubble in 2004 as lending underwriting and associated industry practices became increasingly corrupted by the easy money and systemic fraud inherent any unpoliced industry.

The scale of mortgage fraud from 2005-2008 was beyond any fraud ever experienced in history. The trillions of dollars of losses it caused are the main reason for the Great Recession.

But even worse than the financial losses has been the political debacle: helping the housing market recover, which governments have always done after previous recessions, is now strictly verboten. The obvious Keynesian solution of stimulating housing consumption is politically incorrect to such an extreme that it is not even being discussed despite widespread agreement that housing is holding back the recovery.

at the top of the bubble there was a lot of fake wealth, and now there is like 20% less wealth, or 40% less. so where is the loss, fake money that disappeared...

this is the problem with the logic, its like when things were artificially stimulated, that was normal...but that simply makes no sense....

Somebody making $50K a year, convinced to lie about income because housing prices are rising at 25% per year (ya can't lose), buys a $500K house with 100% credit. now, the house is worth $250K. Buyer walks away. Who loses? The lender (and stockholders or taxpayers), not the buyer.

ha ha...this is the best....like in the mid 2000s when there were plenty of articles on housing prices at a bubble, but others were worried that people were obsessed with the phantom menace of a housing crash....sad sad...unpopular views continue to be dismissed until the black swan poops

i don't see any solution. with houses worth much less than they were 5 years ago, how can there be any "new" housing bubble in the next decade? and with so many people having lost their pensions, 401s & IRAs, all many have left for retirement is social security. obama & the republicans may chop that too. so unless you have a lot of capital & have managed to weather the storm, you are in trouble. increasing demand? a lowered value dollar & high tarrifs? possibly a longterm solution, but it hurts the poor enormously in the shortterm. it looks like the coming 4 years will only get worse. with that the danger is that people will listen to any rightwing nut that comes along.

The United States has been close to inflation with rising commodity prices from a weak buck. Headline inflation can become "bold print" and could be a mistake to disregard as transatory. Why not everything else has happened.

If the Fed buys up bonds in the open market to try to bring down their yields, the result depends on how you define "money". What has happened so far in this cycle is mostly that bank reserves have swelled, greatly increasing monetary base. Unless you call that money, then in effect money has not been "printed". Defining what is money is tricky and the phrase "printing money" is probably thrown around too much, instead of describing what is actually being done. In any case the "dollars" that are in bank reserves are not being spent or paid to workers, so they are not contributing to inflation, although they could if people decided to use them. Why aren't businessmen borrowing all that "money" and investing it - is it because the interest rates are too high, or is it because they don't think the current low demand justifies expansion? If the latter, then it is probably futile to try to reduce interest rates further by any method. It is very unlikely than they could go further down from current levels than a few tenths of a point anyway.

If the Treasury actually printed up bills and Ben Bernanke flew around in a helicopter throwing them out them as he promised, this might increase inflation, but it would probably have a greater effect on demand, since a lot of unemployed people would pick the bills up and spend them (that's why Bernanke promised to do it).

It will be interesting to see what effect the announced program has on interest rates in the real world. When the Fed announced QE2 in early November 2010, the next day interest rates started up and continued to rise for three months. The start of QE1 was also followed by rising, not falling rates.

Broker, Lender =/= stockholder, taxpayer.

The poor pitiful lender/executive made and repackaged those loans, collected his bonus because people (rating agencies) assumed (lied) he was paying attention, and is now in one of three houses with his second wife.

It's not his fault, oh, perish the thought. Clinton forced him, he was tricked by yokels and gypsies, regulation is too burdensome to compete, reading and underwriting is hard, etc.

Actually, if the Fed sells short- or medium-term bonds and buys long-term bonds so that the total in bank reserves remains unchanged, then it is justified to say that the Fed is not "printing money" however it is defined. It does seem silly, however, to describe long-term rates as "stubborn", since they are lower than they have ever been in the life of the Fed except for a period before WW II. Note also that QE2 involved buying medium-term bonds - maybe the Fed should make up its mind what rates are important (if any).

I absolutely agree with this post. I do have two further costs. At the zero lower bound "fears of inflation" should be "hopes of inflation." Second, I have little in the way of either hopes or fears related to Twist II or QE 3 since QE 2 and Twist 1 did little. Yes inflation went up during QE2 as did the price of OIL. The data stongly suggest oil did it not QE2
http://www.angrybearblog.com/2012/06/qe-2-and-breakevens.html

There IS an argument (mainly from European economists 30 or 40 years ago) that the U.S. economy has been self-sustaining for decades (i.e., generates more than enough profit to fund all investment that's economically desirable/justifiable), and that ALL non-corporate investment income since that point has simply inflated one bubble after another, which bubbles explode with more or less collateral damage to the economy and to those of us too poor to invest in anything....

But, of course, the Republicans are still trying to be nice to the "job creators"....

Where IS Helicopter Ben when we need him? If he'd just drop those $1,000-dollar bills, I could pay off credit-card balances from when I had a nice, middle-class job, and maybe find a few cents left to buy something tomorrow!

"...increases the chance of inflation, which invites political criticism."

What this argument amounts to is that the Fed's real motives are - or perhaps ought to be - avoiding criticism and satisfying politicians. The implicit nature of the connection - avoiding a direct statement that the Fed should cringe before deciding - takes it as given. For the Fed to do its job in anything like the right way, such insidious arguments need to be resisted. The Fed ought to aim at its mandated goals and withstand any political flames aimed its way.

I am not an economist, but for the last four years or so I have been trying to recover what I was supposed to have learned in my elementary Econ class back in 1960. I think we used Samuelson's classic textbook. The main thing I remember from the section on macro was that Keynes's theory explained why the Fed's efforts in the 1930s were not working. They were trying to manipulate interest rates, but low interest rates don't stimulate demand. The phrase that was used sticks in my mind: "You can't push on a string." For four years I've been seeing loud claims that, "The Fed still has plenty of ammunition." Well, I haven't seen any help from QEs I and II. I see over and over, "Lower interest rates encourage investment and spending." And I don't see it happening. I think it's time more classical and Austrian economists started re-examining their assumptions. Why should a businessman borrow just because interest rates are low, when nobody has money to buy the goods he would produce? We would probably be better off if the Fed was able to just add a zero to everybody's bank account, instead of paying large salaries to several thousand economists to analyze the statistics.