In our various writings, we have suggested that loose monetary policy of the central bank, which amounts to the lowering of interest rates and monetary pumping, gives rise to activities that cannot exist by themselves without the support from this loose monetary policy.
An increase in money supply as a result of an easy monetary stance by the central bank sets an exchange of nothing for something i.e. the diversion of real wealth from wealth generators towards activities that emerge on the back of loose monetary policy. We label various activities that emerge on the back of loose monetary policy as bubble activities. Given that these activities cannot support themselves, they constitute a burden on wealth generators.
It is tempting to suggest that a tighter monetary stance of the central bank could undo the negatives of the previous loose monetary stance i.e. inflationary policy through the removal of bubble activities. In fact, this type of policies carries a label of countercyclical policies.
On this way of thinking, whenever economic activity slows down it should be the duty of the central bank to give it a push, which will place the economy back on the trajectory of an expanding economic growth. The push is done by means of loose monetary policy i.e. the lowering of interest rates and raising the growth rate of money supply.
Conversely, when economic activity is perceived to be “too strong”, then in order to prevent an “overheating” it should be the duty of the central bank to “cool off” economic activity by a tighter monetary stance.
This amounts to raising interest rates and slowing down monetary injections. It is believed that a tighter stance will place the economy on a trajectory of stable non-inflationary growth. On this way of thinking, the economy is perceived to be like a space ship, which occasionally slips from the trajectory of stable economic growth.
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Now, in yet another note meant to prompt selling of Treasurys (and buying of stocks that 
This Isn’t Your Grandfather’s (1960s) Inflation Scare
March 14, 2018
This Isn’t Your Grandfather’s (1960s) Inflation Scare
As soon as the GOP followed its long-promised tax cuts with damn-the-deficit spending increases (who cares about the kids, right?), you knew to be ready for the Lyndon B. Johnson reminders.
And it’s worth remembering that LBJ pushed federal spending higher, pushed his central bank chairman against the wall (figuratively and, by several accounts, also literally) and eventually pushed inflation to post–Korean War highs.
Inflation kept climbing into Richard Nixon’s presidency, pausing for breath only during a brief 1970 recession (although without falling as Keynesian economists predicted) and then again during an attempt at wage and price controls that ended badly. Nixon’s controls disrupted commerce, angered businesses and consumers, and helped clear a path for the spiraling inflation of the mid- and late-1970s.
So naturally, when Donald Trump and the Republicans pulled off the biggest stimulus years into an expansion since LBJ’s guns, butter and batter the Fed chief, it should make us think twice about inflation risks—I’m not saying we shouldn’t do that.
But do the 1960s really tell us much about the inflation outlook today, or should that outlook reflect a different world, different economy and different conclusions?
I would say it’s more the latter, and I’ll give five reasons why.
1—Technology
I’ll make my first reason brief, because the deflationary effects of technology are both transparent and widely discussed, even if model-wielding economists often ignore them. When some of your country’s largest and most impactful companies are set up to help consumers pay lower prices, that should help to, well, contain prices.
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