Hi doma,
I'll give you a pass because I don't remember when you made your call and you being your interesting self, it will have been for different reasons than the folks whose analysis of the economics came from the Republican right.
They simply drew the wrong analogy. Not being environmentalists, they assumed Reagan's monetary hammer is the best tool for any economic issue. If there's a problem, tighten the money supply. They required that for their view of how the world works to be sustainable. So from the moment the Fed responded with QE, they began talking about the imminence of hyperinflation.
But we were not in a 1980s situation. The issue wasn't hyperinflation. Or even inflation. It was the lack of demand and the risk of deflation. In such circumstances, monetary tools work the other way around. Loosen rather tighten the money supply.
In fact, deflation possibly has a worse effect than inflation on an economy. If sitting on money is more appealing than owning equities or houses or whatever, the economy will implode. That is not a good place to be. In that scenario, even the value of paper money will disintegrate in the end.
In order to avoid the grip of deflation, the Fed needed to add liquidity to the economy to help counter the collapse of demand. Government stimulus also helped some.
QE was the Fed's contribution to the solution. People feared it eroded the value of the dollar. And so they were forced to invest elsewhere. (Witness D&O's worries).
Hence the gold bubble (fear) and the turnaround in the housing and stock markets (investment).
Demand is gradually reappearing in the marketplace.
As the economy strengthens, indeed there is likely to be an issue with inflation. But that is something the Fed knows how to fight. Long way to go, though. At a 2% or so growth rate and 7 1/2% unemployment, the economy is running far below capacity.
If the US gets back to a 3 1/2% growth rate and 6% unemployment, then the Fed should be on alert for increased inflation. I don't see it before then. Paradoxically, as I've said from the beginning, I think rising inflation will be an indicator of recovery.
Hyperinflation isn't likely. It's just a "zombie idea" that is almost impossible to kill.
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