Unlike the song, "love and marriage you can't have one without the other" in today's environment you simply cannot have price stability and maximum employment. In reality the Fed is charged with playing out an oxymoron.
The more the Fed achieves price stability by raising interest rates, the more it increases unemployment numbers. The more it lowers interest rates and floods the economy with cash, the more it promotes inflation.
Yes, today the Democrats will contend that they have high employment but those figures are masked and unreal. The real number that we should be worried about is the last report that shows a fall in productivity. If inflation can be defined as too much money chasing too few goods or services, week productivity decreases the supply of goods and services and, in turn, makes the more goods and services expensive-or, if you like, increases inflation.
Many of us have been writing for some time that our fiscal and monetary profligacy have now brought us to a place where at best, that is if we are lucky, the only power we have left is to choose our pain. We can choose inflation or we can choose unemployment but we must have one or the other.
This choices forced upon us, as I said, because of our profligacy. The Fed cannot solve this problem without causing pain on one side or the other. If we lose even this much power to choose, if the Fed, for example, puts a foot down wrong anywhere or if Congress continues to burn money, we will find ourselves in a world of stagflation in which we get not just unemployment or inflation but both.
This is the dismal place profligacy, led by Democrats but condoned by Republicans, has brought us to.
