The Great Recession, Inflation, and China

Joe Gregorio

There are two things that have been bothering me for a while now. The first is that the only realistic way out of our current situation, barring a Japan-like lost decade, is to inflate our way out of the Great Recession, yet there isn't any movement in that direction.

The other thing that has puzzled me has been the treatment of China as if it were an economic miracle, impervious to any rational market behavior. As a general rule, claims of an "Economic Miracle" should be treated to the same scepticism as perpetual motion machines. There are rumblings, centered on bubble-like real-estate prices, that the China bubble is about to burst.

And that leads me back to puzzle number one, and the idea that maybe the Fed does realize that it has to inflate us out of the Great Recession, but that it will be much easier to do after the wheels have come off the Chinese economy, and not before.

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