Perils of Inflation

Fighting the economic downturn, the Federal Reserve has printed more money--much, much more money--than it ever has. Once the economy begins to heal the Federal Reserve may be able to take this new money back out of the economy, but that will be difficult, and to the extent that it does not, inflation will ensue. Most of us are accustomed to low inflation rates and do not possess the experience to plan for a future with high rates.

Consequently, should high inflation rates take hold many will be adversely affected. The Notable and Quotable section of the Wall Street Journal contained a description of the harms inflation inflicted on one particular person in the 1970's. Students identify better with stories of real people than abstract concepts, so relaying this little story may help them understand how inflation harms innocent people as they try to plan for the future.

From June 12, 2009 - "He was the epitome of the Protestant Ethic. He had inherited money, he had saved, he was very frugal, had a very modest house, had part of his investment money in bonds and short-term securities, had always maintained liquidity. And he came out of the Seventies looking like a fool."