Comments on : “Is there Inflation Ahead?”

Dear Friends,

As always, some of you made interesting comments on my Inflation note.


May I infer that what you expect is significantly higher interest rates AND inflation significantly above 2 per cent? If so, other than writing a letter to our Congresswoman (who can’t vote) and perhaps buttonholing Barney Frank at your next Christmas eve party, what else? Could you write a second piece looking at investment strategies—what investments one might make to neutralize, or even benefit from, higher interest rates 2-3 years from now, raging inflation and a devalued dollar? All of your friends would be DEEPLY INDEBTED to you for this kind of advice. I’m refinancing my apartment, capturing 4.65 interest rates for 30 years. But what else?


Charles [Krause, Washington DC]


So the answer is "maybe"?
Russ [Schrader, San Francisco, CA]



Nice to hear from you. I hope to visit that region of the world again at some point. Relaxing by the Dead Sea is no doubt nice, but so is dancing with the Dead! I’ve recently attended a few concerts by the remaining members of the original Grateful Dead who are on tour this spring.

The Dead began doing shows around 1966. For more than 40 years, presidents have come and gone while they just keep playin’ in the band, sharing their music with whomever happens their way.

They met briefly with President Obama during there stop-over in Washington. Probably moreso for Obama to pay homage to them, then vice versa. Someone associated with the band was quoted in the Post saying "there were no ties, and no tie-dyes." Ah, the Jeffersonian spirit lives. An extended hand of friendship with all, at least initially, and alliances with none.

There’s something about the scent of patchouli, the glow of fire in glass as the lights go out, the haze that engulfs a roaring crowd as the band takes to the stage, and the music of the ages that pours forth like a favorite wine.

How does any of that relate to the economy and inflation? The best things in life do not come from government, they are not expensive (although they are precious), and they are readily available to all who have ears and wish to hear, and all who have eyes who wish to see, in a manner of speaking.

Nero may have fiddled while Rome burned, but Rome had no business in Israel, and they never should have killed Jesus.

"I spent a little time on the mountain,

spent a little time on the hill.

saw some things gettin’ out of hand,

and I guess they always will…"

(from New Speedway Boogie, 1969)

David Garland [Richmond VA]



  Right on target!

Jim [Dorn, Cato Institute, Washington DC]



Thanks for this.  Feldstein had a piece in the WSJ or FT yesterday giving a more pessimistic scenario about in inflation, and Volcker and Don Kohn got into a public verbal argument about it.

RWR [Richard Rahn, Great Falls VA]


Dear Warren’

Many thanks for the insight. It was very helpful to me. I hope you are doing well….


Tolga [Sobaci, Istanbul, Turkey]


Hi Warren,

Very interesting article.

I hope I’m clever enough to buy long bonds when rates are way up, as they probably will  be at some point over the next 10 years…   if  we had bought 30-yr. bonds in Sept. or Oct. 1981, we’d still today be earning 15% per annum, that’d be wonderful!

Writing one’s congressman may not be enough, there may simply be too many powerful constituencies in favor (maybe without openly expressing it) of a sharp burst of debt-reducing inflation, or in favor of sustained not-extreme but not-so-moderate inflation (+5% per annum).

I do – sort of – remember the late 70s & early 80s, I was 10-15 yrs. old during that period. I remember going to Europe in 6th grade, my dad took me over for about three weeks, that must have been around 1979, and the dollar had recently reached a postwar low, I  remember how grumpy my dad was when I’d ask for walking-around money in London, hahaha and with 2,000 Ital. lira equaling a dollar, even at that tender (but no longer virginal) age, I somehow instinctively understood that this "goofy" exchange rate reflected past inflation, that the Italians hadn’t started out with a currency worth a tenth or a twentieth of a penny.   

Anyway, welcome back from Jordan.

Wolfie [Ernest McCall, Istanbul/Washington DC]


Thanks Warren – a fantastic note! This is exactly what we are currently studying in my International Economics course (whether Fiscal policy has an effect on Monetary policy).

Hope all is well!



Alex Seleznyov

Georgetown University

McDonough School of Business class of 2010

[Almaty, Kazakhstan]


Dear Warren,

Speaking of future inflation, have you read Greg Mankiw’s crazy article in Sunday’s New York Times ("Maybe the Fed Should Go Negative", NYTimes, April 19, 2009: 

After reading it, I was reminded of Lord Acton’s statement, "There is no error so monstrous that it fails to find defenders among the ablest men."

Basically Mankiw advocates a partial (10%) repudiation of Federal Reserve Notes in a desperate effort to get the public to buy Treasuries that pay negative interest rates.  He believes this extreme measure is necessary to jump start the economy and reignite inflation, his ultimate goal.  Each year he would have the Treasury choose a random 10% of all banknotes and repudiate their legal tender status as a way to encourage people to buy T-bills that pay less at maturity.  

That’s got to be one of the most dangerous policy ideas since Keynes endorsed Silvio Gesell’s "stamped" money idea and "zero money rate of interest" …Keynes himself labeled Gesell a "crank" (General Theory, pp. 353-57).  If enacted, Mankiw’s dollar repudiation idea would surely panic the public into withdrawing billions from bank accounts and into gold. 

With hair-brained schemes like this one, I can see why the country is losing faith in its government and economics profession.  And this is coming from the #1 econ textbook writer! 

It’s highly doubtful the Treasury would adopt Mankiw’s crazy idea, but it won’t enhance Mankiw’s reputation as a sound thinker. 

I’ve known Greg for many years and have told him that he’s making a serious blunder that will come back to haunt him. 

BTW, in the same New York Times yesterday, they had a sample AP exam in econ.  Amazingly, I got a "5" point scale ("extremely well qualified").  You can take the quiz online by going to:

Best wishes, AEIOU,

Mark [Skousen, NY]

Author: Warren Coats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.

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