The bottom line is that by the time the Fed becomes institutionally aware that inflation is raging across the globe – and I often wonder when they’ll finally awake to the threat – it will be too late. Inflation will have the momentum, and it will take a vast overreaction on the part of the Fed to restrain it. They’d have to drain enormous amounts of liquidity and tolerate vastly higher interest rates to be able to do that, and I doubt they have the courage for such bold action. I think they will hesitate, equivocate, and ultimately be late.
History suggests that inflation is best tamed early, but the Fed is already late and demonstrating a remarkable callousness by doing the exact opposite of fighting inflation. While we cannot know what it is that the Fed sees, or which demons it is fighting that provide the internal rationalization for risking a hyperinflationary outcome, we can only conclude that these threats are more spectacular than the alternatives.
Unfortunately, these events conform to the main themes that I have been writing and advising about for the past several years. Sadly, they are not a surprise at all; the only mystery to me so far is how they have managed to carry on as long as they have.