May 21, 2010.  A popular topic at tea parties, but really, can you get any sillier? Three trillion dollars ago, when Bush shifted the deficit into overdrive (a good thing he did), inflation was about 2.5%. Now it's about 1%. Hyperinflation? No just hyperventilating.

You don't need to be an economist to figure this out. Say you manage a local restaurant, and read about the deficit. So you think OMG inflation! I better raise the price of a steak and fries. So you "explain" this to the owner, who says, What have you been smokin'. Business is down from the recession; our competition is having more specials, and you think our customers will pay more because the national debt went up?

No, believe me. Any business that raises prices because of the national debt, died a long time ago. A booming economy lets them raise price. A recession—yes that's what's going on—makes it hard to sell things, so prices get cut. That's why inflation is down.  But, what I can't figure (can you?) is why people stay so mixed up?

November 7, 2009.  The Federal Reserve has promised not to reignite inflation, but what about the debt? Could that cause inflation anyway?

It's true, the money supply controls the price level in the long run, but it does not do so directly. No one raises any price because they heard the money supply was up. Inflation is only caused by tight markets -- both labor and commodities.

(Oil price increases cause a 1-time price increase not inflation, unless the oil price keeps going up forever.)

So will the market get too tight? Not until the unemployment rate gets back down to about 4.5 to 5%. And then? Then the fed will decide how tight they want it. They might try to devalue the debt with inflation.

But I wouldn't bet on it. High inflation, might cause China etc. to sell there debt, but I don't think we want that. International monetary economics is, unfortunately beyond me, so I think I don't have much value to trade in that area.

May 5, 2009. BERKELEY, Calif. (Dow Jones)--The end of the recession is in sight, although the recovery could prove long and slow, the San Francisco Federal Reserve Bank's top official said Tuesday. ...

Yellen said she's more concerned about lower inflation and deflation, than about runaway inflation when the economy recovers. She said she expects inflation to fall below last year's 2% level, to as low as 1.5% in 2009 and possibly lower in 2010.

"If deflation were to occur with the funds rate near zero, the effects could be severe," Yellen said. But she added that she doesn't expect a "deflation problem."

Meanwhile, Yellen discounted fears that inflation could accelerate once the credit markets ease and the economy picks up steam. The Federal Reserve "is well aware" of the need to tighten its stance on monetary policy when the economy recovers and "is readying the tools even now," she said.

The prevailing fear is that overly weak economic activity will lead to deflation, but some worry the Fed's extraordinary interventions could fuel a future inflation boom.

A potential tool the Fed could use to tighten monetary policy while also supporting financial markets would be to issue interest-bearing debt broadly to private investors, Yellen said. Such debt issuances would have to be authorized by Congress, but it's a common tool used by other central banks, she said.

Yellen noted that the Fed's efforts to ease financial conditions and lower interest rates appeared to be working, and that positive effects from the billions of dollars in federal aid included in the stimulus package will likely be felt this quarter.