Which is the Greater Evil.....

There is an ongoing debate as to whether we have more to fear from inflation, or deflation. What is disturbing in the discussion is the fact that often the steps taken to combat the one leads to the other.

The digital approach taken by proponents of both sides of the argument doesn't lend itself to a rational dialogue. On the contrary, there seems to be a movement to immediately politicise the question.

Personally I think the truth is that there is a fine balancing act required to avoid excesses in either direction, and in any event trying to manage the economy is like trying to type with stiff mittens.

I appreciate the difficulties facing Central Bankers and I understand the Fed's decision under Professor Bernanke to target "core inflation" (excluding food and energy prices).

Although the effect of raising oil/energy prices on the economy can be devastating, raising interest rates to combat them often lead to stagflation, which is perhaps even worse than the other two "flations".

At some point the Fed will have to react to the inflationary pressures that they themselves have at least partially created in their attempts to stimulate the economy, but that day is still somewhere in the future.

Anyone arguing that the Quantitative Easing (QE)"time bombs" being laid by the Fed have to be dealt with today runs the risk of demanding actions that might in the long run help avoid an inflation, but in the near term crush the economy.