Inflation? Eh.

The American president is meeting with the German chancellor, and they disagree about what to do about the global economy. The Germans had some bad experiences a while back, and the Madam Chancellor is concerned about inflation.

But do we really need to worry about inflation? The way I look at it, a little inflation (a few percentage points; let's not go crazy) might not be a bad thing. I'm not anything like an economist, but:

One of our central bank's main economic levers is the interest rate that it charges other banks. Pay attention, because I'm about to mix metaphors: that lever has been pissed away. The federal funds rate stands at less than a quarter of a percent. When the economy slows, the Fed lowers its rates to make borrowing cheaper, thereby increasing the velocity of money in the market, thereby effectively increasing the amount of money available to each of us to spend, thereby encouraging us to spend it, thereby giving us yet more money to spend, and so on, until the economy recovers. But this tool is gone now.

Clearly, the Fed cannot lower rates when they are already at zero or nearly so (unless it intends to pay us to borrow money). That means that, sometime in between the end of the current downturn and the beginning of the next, interest rates will have to go up. A lot.

What would make the Fed want to raise interest rates consistently over several years? Quite so: a relatively high rate of inflation, caused by an overstimulated economy.