Sorry for the late answer, dont have too much time lately:


Yes, some areas are suffering but not all. Its the problem at looking at unemployment as a big agregate, you miss what its really happening. F.e. a construction worker is not competition for a google engineer. So when it comes to negotiate the salary for the google engineer the fact that there are a bunch of construction workers unemployed doesnt make any difference.

The way it happened is that the people closer to the money supply saw their wages up sooner. Those people are the ones working on the financial industry, whose wages are recovering and going up in the middle of a depression. Then we are seeing the high skilled workers demanding higher wages, for example engineers of Google and Microsoft: Goolge war for talent rises wages 10% (2010), Microsoft raises wages to attrack talent (2011). But the central bank money is getting to specialized workers (not necesarely high skilled workers): Truck companies see a 30% wage increase

According to keynesians that should not be happening, but it is. The problem is that the idea that because unemployment is high wages can not go up is utter bullshit. Not all workers are interchangeable, not all unemployed workers are competition for working workers. As I said, that a bunch of construction workers are unemployed is not competition for a Google engineer. Its the problem of looking at aggregates and not at reality.

For a better explanation I recomend this short article of proffesor Steve Horwitz: http://www.pbs.org/nbr/blog/2010/08/idle_resources_-_they_dont_sto.html

The sad part is that some areas, mainly of low skilled labour, are not going to see their wages rised because anyone is competition for them, while the rest are going to see their wages rised and prices are going to follow. So the less skilled workers, usually the poorest, are the ones who are going to suffer inflation most. As always, inflation works to increase the wealth inequality.


Fair enough. Let me show you why they do:


Yes, but the choice is not between deflation or hyperinflation. Some people argue that we are going to see a lost decade of near 0 inflation/deflation ala Japan lost decade, some others (like me) argue that we are going to have stagflation (high inflation and high unemployment) ala the 70's.

What the governments/banking system are trying to achieve is high inflation but controlled. Granted this is not guranteed, there could be a panic and they could loose control and go into hyperinflation. While its always a risk my opinion is that they will pull it off and we will get high inflation for many years, while the unemployment wont fully recover.

Bernanke has lost control over interest rates and raising them significantly (ala 20% Volcker beggining of 80's) would be a disaster with the governments and banks going broke. Thats why after the crash of 2008 Bernanke got permission from Congress to start paying interest on excess reserves. This had never happened in the history of the USA (or any other central bank that I know). What does Bernanke achieve paying interest on excess reserves? It controls the flow at which banks grant credit to the private sector. If Bernanke thinks too much credit is being emited and inflation is getting out of control he just have to raise the interest of the excess reserves and banks will decide to leave more funds at the Fed instead of loaning them out, because its risk-less. There are other tools Bernanke can use but thats the main tool that he will use to control the flow of credit into the economy to produce high inflation and avoid hyperinflation. The risk of hyperinflation is always present, but Im pretty convinced he will succeed and the western economies (the ECB will follow the Fed) will go through years of stagflation.

Conclussion: If deflation gains traction Bernanke can monetize government debt (like it has done until now and has avoid any kind of price deflation). If inflation starts getting out of control it has tools to control it (not avoid it).