Jim Grant: Expect 5% inflation

Jim Grant, We should go back to the gold standard, as imperfect as it is , it's better than a central bank not-smart enough to see the Sub-prime crisis yet smug enough to believe it can engineer 2% inflation and nothing more.

The TIPS treasury spread says 1.5% inflation for the next ten years.

That's an expectation priced in by the market.
The market priced in rising home prices back in 2005. TIPS measure what the term structure of inflation expectations, not what will happen. BIG DIFFERENCE!!!
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Another key example stock crash of 1987 before and after. Market clearly priced in different expectations.

I suspect the Bond market is not working right now. The Federal Reserve is going in and buying Treasuries. Perhaps the better clue in this puzzle is how the U.S. dollar is holding up against a basket of major currencies. Our buying power versus our trading partners continues to decline. Add to that rising commodity prices. It's really quite sad.

The equivalent to TIPs in corporate bonds and non-US OECD investment grade sovereign debt says the same thing. The market does NOT expect inflation, whether or not QE is involved.

Jason, do you think that anyone understands what you just wrote?

If the Fed is coming in and buying bonds and all bonds trade at spreads off gov't bonds, why would you expect otherwise?
The gov' very much controls the yield curve. Even without Q.E. just by lowering short term rates and engaging in regulatory policy they "encourage" the banks to engage in a carry trade borrowing short, investing long which also has the effect of lowering long term rates.

abolish the fed!!!

>abolish the fed!!!

Productive comment.

abolish the fed!!!
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Not so crazy. The Fed's role is antithetical to a Free Market banking system. Consider that the Fed is promoting,encouraging,protecting a system of five banks controlling the system and getting unfair advantage. The top five can borrow money at lower costs since the Market knows they are too big to fail and will be protected by that same Fed. And too big to fail banks gain countless other advantages.

Additionally consider how distortive the Financial markets have become as a the result of Fed policy.