Inflation's Worst Nightmare

Make no mistake, we here at BMBS (ok, maybe just me) ultimately support a return to a private currency system (AKA, the gold standard). I'd much rather let the market do its job in determining the natural price of borrowing instead of putting blind faith in a government-run central bank subject to the whims of bureaucrats and politicians who are ever-thirsty to print more dollars to finance worthless projects and win elections. As history illustrates, the feds are almost always behind the curve when it comes to manipulating interest rates anyway. Government-induced inflation is the worst of all economic evils, and can lead to the mass destruction of wealth. Under a gold standard, inflation would probably hover around 0%.

But the good news is that since the late 1970s, the Federal Reserve has been dominated by free-market conservatives, who have given us a standard that is nearly "good as gold." The new fed chief, Ben Bernanke, is no exception. Steeped in Austrian-school economic fundamentals like his two predecessors, he understands that the primary purpose of a central bank is to fight inflation at all costs by keeping the money supply sound. It is not, on the other hand, to manipulate the supply of money just so we can have "full employment" like the Keynsian liberals did in the 60s and 70s.

Bernanke has vowed to continue Greenspan's money-tightening campaign that began 2 years ago until inflation is whipped. In the short term, this is currently bad news for stocks (the Dow has dropped nearly 700 points in the past month or so as investors fear the coming rise in borrowing costs), because Bernanke is proving he's even willing to throw the country into a temporary recession if necessary. But in the long term this is great news, because it means investors will continue to place faith in a currency that remains stable, and in a country that continues to be one of the best places in the world to do business.

Good work, Ben.