THE THREAT OF INFLATION 53Second, once you change behavior it’s very hard to change it
back again.
Right now, the Fed says, “We want two percent inflation.”
Some of the FOMC members will tell you privately that they
wouldn’t mind seeing three percent inflation. To get it, they’re
going to keep printing and printing and printing until they get
the three percent inflation.
But there are two problems. Most obvious is, they’re print-
ing all of that money. They might actually destroy confidence in
the dollar before they get to three percent inflation.
This is where the British, Russia, China and other foreign
countries buying gold all play out. These are governments back-
ing away from the dollar because they don’t like what they see.
The second problem is, the Fed might get to three percent in-
flation, but then cruise past it to nine percent inflation. Again, once
you turn that battleship around you can’t turn it back very easily.
The Fed thinks they’re playing with a thermostat. It’s like if
your house is too cold you dial it up. If your house is too warm,
you dial it down. The Fed wants to dial it up. They want a little
more inflation and they think if things get a little too hot they
can dial it down again.
What they’re going discover, probably the hard way, is that it’s
not a linear. It’s not a reversible process. When they get it to three
percent inflation, which is not easy, it might go right to nine.
That’s when investors will lose a lot of money.
■ Helicopter Money and Peer-to-Peer Lending
Printing money by itself does not cause inflation. It’s a necessary
condition, but it’s not a sufficient condition. You do need the
money to cause that kind of inflation, but you need something
else. You need this change in behavior or velocity.
A lot of people say, “Well, all that money sloshing around
is going to lead to a lot of lending.” That’s not how it works.