Scare Come True

Investors are scared that Barack Obama’s handling of the economy will lead to inflation within five years in the United States.

According to The Wall Street Journal, demand is so big for five-year Treasury inflation protected securities, or TIPS, investors are paying prices that guarantee a loss of money if inflation fails to materialize as expected.

Source: The Wall Street Journal

But despite Obama trying to scare Americans with wild-eyed talk about deflation, companies are planning to raise prices in order to keep up with commodity prices that have skyrocketed in the past year, while the dollar under Obama’s administration has plunged to record lows (see figure).

It’s a worrisome combination, because the money with which Obama has flooded the economy – in the name of “stimulus” – will contribute to a positive-feedback cycle of inflation, which, in turn, will require the Federal Reserve to react by raising interest rates in an economy that has yet to recover from the misery of high unemployment and a housing market in critical condition.  Americans will then find themselves stuck between the proverbial rock and hard place – unable to raise interest rates further, for fear of killing all hopes of an economic recovery, yet scared, ironically, to follow Obama with greater stimulus to plunge the U.S. economy into hyperinflation.

Neglecting problems directly related to unemployment and the economy for more than a year so that he could boast about passing legislation for health insurance reform, Obama might be remembered not by the color of his skin, but by a lack of character willing to push the global economy into the next Great Depression, about which he filled so much of his partisan rhetoric for a good campaign contribution and scare.

References

Barack Obama, “Remarks by the President in Town Hall Meeting, University of New Orleans,” October 15, 2009.

Barack Obama, “Remarks by the President at a DNC Dinner in Palo Alto, California,” October 21, 2010.

Barack Obama, “Remarks by the President at Las Vegas “Moving America Forward” Rally,” October 22, 2010.

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