Policymakers NEED Inflation

"The mother of all evils is speculation--leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)

This missive is exactly right. The Fed and other central banks NEED inflation. Properly defined, inflation is expansion of money and credit supply. A system gets leveraged as credit inflates.

With current leverage in the system, it takes only a small decline in asset prices to turn balance sheets upside down. Because our incomes cannot support current level of debt service, we must resort to ever more borrowing to make ends meet.

This is why the Fed keeps pushing out the date for raising rates. Still grasping some principles from ECON 101, the Fed knows that raising rates (raising the price of debt) reduces quantity of debt demanded.

No credit expansion->not enough debt service->not enough stimulated demand->falling prices->upside down balance sheets->insolvency.

So the ponzi continues until credit can no longer be created at ZIRP or NIRP. Then comes pure money printing a la Weimar.

A most laughable claim is that the Fed is an inflation fighter. In reality, the Fed is an inflation factory.