Inflation and rates

Krugman wants 4% inflation (well, it's already beyond 4% if the calculations have been honest), Some want 5-6%. But they forget that this will push treasury yields way up and put the govt in huge trouble. There is no free lunch.... The market now believes inflation to be only 1.7%, and 10 year yield is 2.64%, 30 year yield is at 3.36%. Where will yields be if the market believes that inflation is 4%?

On another note, it is likely that the Fed will not voluntarily raise rates because they have to know that this will crash the bubble economy, and put the government in a very uncomfortable position with their debts. So, expect the Fed to come up with more excuses to keep rates low and even come up with a new QE in the months to come.

Greenspan brought rates down to 1% and left them there for 2 years. He had to raise them slowly over the next 4-5 years to try not to collapse the artificial boom in housing. He thought this will give the market enough time to adjust. BAD bet. He should have raised rates much sooner to prick the bubble. Better yet, he should never have lowered rates in the first place. There's no free lunch. Look at the damage it did.

Bernanke/Yellen had kept rates down at 0% for SIX years now. Again, they never learn. Again, they hope the market will adjust without incident. Yellen is most likely not going to raise rates voluntarily because she will prick the bubble economy. It is more likely that the market will eventually force them to raise the rates. But expect the carnage that will follow.