To return to the theme of deflation which I brought up a few days ago, we have a couple of articles about the Fed’s indecision on the issue of deflation. First we have an article which talks about their inability to decide whether there will be deflation or not:

“A few participants cited some risk of deflation,” the minutes noted. “Other participants, however, thought that inflation was unlikely to fall appreciably further, given the stability of inflation expectations in recent years and very accommodative monetary policy.”

[...]

“Several participants noted that a continuation of lower-than-expected inflation and high unemployment could eventually lead to a downward movement in inflation expectations that would reinforce disinflationary pressure,” the minutes stated. “By contrast, a few participants noted the possibility that a potentially unsustainable fiscal position and the size of the Federal Reserve’s balance sheet could boost inflation expectations and actual inflation over time.”

I can’t criticize anybody for not being sure. I’m no Krugman (or Makin), after all. But in general, I would think that the fact that inflation has sat so low for so long is an indicator of deep, deep troubles. At this point, only the most optimistic are saying that we’re about to see real growth in the economy (sorry President Obama). Yeah, the stimulus worked to the extent that it did save and create some jobs. But not nearly enough to put all those unemployed workers back in action, much less absorb all the new workers being added. Not immigrants, mind you, just young people growing old enough to need jobs. I’m with Krugman that it was too little, too late. And before I get any trolls (well, I wish we were popular enough to have trolls) telling me that China’s stimulus worked and it was a mere $300 billion, well, it was actually $586 billion and for an economy with a GDP of $4.33 trillion whereas ours was $787 billion on a GDP of $14.59 trillion. Theirs was far more substantial. Or you might object to it on principal. Anyway, it just did not turn us around. It did help us some, and you can find evidence of that by doing pretty simple internet searches, but it’s just not enough.

In any case, the Fed simply can’t decide whether to do anything about it. Mr. Bernanke, in all his wisdom, is simply not a believer in being too active. From the NYT:

Mr. Bernanke says he believes that there are situations that could justify new measures on top of what the Fed has done so far: keeping short-term interest rates to near-record lows and amassing a portfolio of government bonds and mortgage-backed securities, which has put downward pressure on long-term rates.

But to take new action, Mr. Bernanke and other Fed officials would have to be convinced that the economy was moving onto a perilous path of deflation, or that the recovery was so painfully sluggish that it lacked enough momentum to generate private sector job growth.

Honestly, I don’t really understand what constitutes “painfully sluggish” to him. Job growth is already pretty much flat. I mean, I suppose he might be thinking that that’s normal and he’s expecting jobs to start coming back any day now, but that just doesn’t seem rational to me. Maybe we won’t hit deflation, but an inflation rate of right around 0% isn’t a positive tell-tale. I don’t get the point of sitting back and waiting to see what happens for much longer. The economy’s growth rate was spurred by the census and the stimulus. With those fading away and yet more economic perils on the horizon, what positive news can we look forward to? Heck if I know. I’m just glad to have a job!