Stop inflation so prices stop rising? You speak of stagflation like if its something that comes out of the blue, and not something that happened because of a set of policies.

Its not "what can be done about stagflation". It is "what should the government stop doing to stop stagflation". But the high inflation that comes with stagflation devaluates government and financial institutions debt, so the government has all interest in letting stagflation run for a while.


I have had this discussion a lot of times and its getting kind of boring right now, but lets give it another shot.

Basically the Fed has pumped a lot of money into the financial system. This money has not been released into the market yet and it sits as excess reserves. Also, the Federal Reserve has bought government debt, which is one of the main reason the deflationary correction did not happen, therefore turning the crisis into a long depression. The Fed bought specially long term debt, to keep the yield curve in check, which is funny because the Fed spent years saying that it only influences the short term yields.

The reason that prices will start rising because of all this inflation is because the Fed has no chance to remove all that liquidity. If you want to discuss why we would have to analyze the Federal Reserve balance sheet, which I have no problem doing. But it should be noted that when Bernanke started all this mesures he said that he would have no problem removing this liquidity, but now he started using the money he gets from the MBS he bought into buying more government debt. He has no intention of removing the liquidty, but even if he wanted to, he has no chance.

The question is not why will inflation happen. The question is how can anyone be so blind as to not see big inflation is coming, and its going to push prices up a lot.

PS: English is not my mother language, and speaking technically is hard for me, so excuse any incorrection.