Steve Hanke, professor of economics at Johns Hopkins University, is getting in on the blame game. In an upcoming issue of Forbes, he points the finger at Federal Reserve Chairman Ben Bernanke and former chairman, Alan Greenspan. Hanke writes:

Now the Fed has opened the money floodgates again and its balance sheet has more than doubled in size since August. Investors watching the recent rally may think that the Fed has stabilized the markets and saved the day but its approach is fraught with danger.
As the self-regenerative powers of the market system kick in, the demand for money will fall and the velocity of money will correspondingly go up. Unless the Fed shrinks its balance sheet by selling bonds and mopping up excess dollars, inflation will roar back with a vengeance.
I am worried that the Fed will sit on its bloated balance sheet for too long. After all, a move to significantly reduce its size would require the Fed to sell hundreds of billions of dollars in bonds. These sales would cause bond prices to fall and yields to rise. Higher rates would be felt in the mortgage and corporate lending markets, and could give rise to another recession.

BONUS: Hear Steve Hanke talk about hyperinflation on the podcast.

categories: Pitchforks

1:52 - April 24, 2009

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