The 'Limited Inflationists'; Fed Chairman Ben Bernanke and his QE Street Band.
Federal Reserve Chairman Ben Bernanke is a student of monetary history, so perhaps he remembers Sumner Slichter. In the 1950s, the Harvard economist made his reputation as the leader of an intellectual band that Time magazine dubbed the "limited inflationists"--the idea that some inflation was good for an economy, and that the Fed should encourage a gradual rise in prices.</br></br>In a hearing on Capitol Hill, his views drew a famous rebuke from Fed Chairman William McChesney Martin, but Slichter's ideas gained currency in the 1950s and 1960s and eventually laid the groundwork for the not-so-gradual inflation of the 1970s.</br></br>Slichter died in 1959, but he is staging a rebirth at none other than Martin's former home, the Federal Reserve. A galaxy of Fed officials has fanned out to argue for another round of "quantitative easing," or a further expansion of the Fed balance sheet to boost the economy. The "limited inflationists" are once again at America's monetary helm, promising happier days from rising prices while downplaying the costs and risks.</br></br>***</br></br>In the first QE go-around in spring 2009, financial panic was still in the air and the Fed's justification was to save us from Depression. Today, the panic is over and an economic recovery is underway. So the Fed's new justification is that growth is still too slow, unemployment is still too high and prices aren't rising fast enough.