Currency Devaluation And Confidence Are Interconnected

The seed of inflation were sown long before the "I can't eat an iPod" response. The ‘dance’ between currency devaluation and confidence tends to tenuous and volatile within a purely fiat system. The transition between prices are rising (mild inflation), wow things are expensive (strong inflation), and throw those bills into the fire to keep me warm (hyperinflation) is usually swift and unexpected. When confidence breaks, it does so very quickly.

Headline: Sticker Shock

The Fed may deny it, but Americans know that prices are rising. In this week’s Newsweek, Niall Ferguson takes a look at the Great Inflation of the 2010s.

“I can’t eat an iPad.” This could go down in history as the line that launched the great inflation of the 2010s.

Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”

Dudley’s boss, Ben Bernanke, was more tactful in his first-ever press conference on Wednesday of last week. But he didn’t succeed in narrowing the gap between the Fed’s view of inflation and the public’s.

Source: news.yahoo.com