In religion, a prophet is a person who has encountered the supernatural or the divine and often one who serves as an intermediary with humanity. In the late 20th century the appellation of a prophet has been used to refer to individuals particularly successful at analysis in the field of economics. Now let's meet Prophet Ben Bernanke.
In a speech made more than 6 years ago before the National Economists Club, Washington, D.C., Bernanke wrote:
About Preventing Deflation
As I have already emphasized, deflation is generally the result of low and falling aggregate demand. The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation.
About Zero Interest Rate Policy
But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed's policy instrument--the federal funds rate--were to fall to zero. What then?
As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken.
About Printing Money ASAP
Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.
About Quantitative Easing
A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.
So, Prophet "OKI" Bernanke (Oki stands for a famous Japanese printer brand), will do all that he can to create inflation. And he knows he can, if he has enough printers. So, the real problem the US economy will have regarding prices will not be deflation but big, runaway inflation. There is no quick fix for all this money being printed. As Jim Rogers says, every time in history a huge amount of money was printed it has always led to inflation. This time the outcome won't be different.
Another very savvy investor, Marc Faber, has serious inflation concerns. I have no doubt in my mind. Inflation is coming and US Government Bonds will collapse. There is no other way around it. Fasten your seat belts