Are we headed for 15% inflation?

That's the question asked by Steven Cunningham in an article at IDB today. He believes it possible that by late 2013, the massive amount of cash dumped into the economy by the Federal Reserve might serve as a catalyst for a round of high inflation: Since the economic meltdown began in 2008, the Fed has pumped an unprecedented amount of money into bank reserves. In 2011 alone, adjusted bank reserves increased at a compounded annual rate of 47.1%. As these bank reserves filter into the business and consumer economy, the risk of inflation rises. Until recently, the reserves weren't going anywhere. The banking industry was taken to task for making risky loans before the economic meltdown. So they were happy to sit pat. What's more, in October 2008 the Fed started paying interest on reserves held at the Federal Reserve Banks. Apparently designed to help buoy bank balance sheets, this made it profitable for banks to forgo lending in favor of the low-risk profit provided by the...(Read Full Post)