There has been some discussion in the news about inflation. Japan is actively pursuing inflationary policy with the Yen. The Federal Reserve is not backing off of its Quantitative Easing, taper-off. Meanwhile, India is is watching their currency collapse. And the ECB just announced a surprise lowering of their interest rates. One of the hallmarks of modern economic theory is the stimulatory nature of increasing consumption now. This is financed through two mechanisms, debt and increasing the monetary base. The root of the dual mandate of the Federal Reserve is that inflation as shown by the Phillips Curve causes higher employment. This is dangerous policy. Here is the math explaining why. Continue reading →