Saturday, March 5, 2011

The Two Economies

Dr. Duru at Inflation Watch points to a Fidelity article "considering the implications of the inflationary boom that seems to be driving stocks skyward."


Federal Reserve QE policy makes lots and lots of money available to those who already have lots and lots of money. So the things they buy are gonna inflate in price. "Asset inflation," it has been called.

Meanwhile, for the rest of us inflation has been late in coming. Oh, we're starting to see it now. But it isn't demand-pull inflation. It isn't driven by some great burst of spending by people who can't make the ends meet. Ours is cost-push inflation, driven by low profits and the scent of money.

Ours is opportunity inflation, because sellers know there is lots of QE money around and -- optimistically misreading the distribution of that money -- they think we'll be okay with paying the higher prices they need to ask.

So prices go up for us, but not as soon as stock or asset prices.

//and a follow-up:

Doc Duru again, with a post title supporting the above remarks: Economist Diane Swonk sees continued inability to pass along price increases to consumers

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