Treasury Rates Rising Above 4%

Is inflation coming?

Treasuries finally broke the 4% yield mark earlier this week. Could this finally be evidence of the beginning of inflation?

Let's not quibble about commodity prices and such. I mean Friedman's view of inflation-

"everywhere and always a monetary phenomenon."

The gap between the Fed's rate setting and the market's is now looking pretty significant. And, in the long run, markets tend to win that fight.

In hindsight, it will be easy to see the massive federal borrowing and dollar creation of the past two years as inflationary.

There are, to be sure, various arguments concerning relative safety of currencies. In that view, dollars are still more trustworthy than any other currency. So, at the end of the day, investors will still hold dollars.

But so many new dollar-based obligations have been created recently that it fairly screams 'depreciating dollar!'

What investor wants to explicitly buy an asset that can so easily be depreciated by its creator? And that's so clearly what is going to happen to the dollar in the years ahead.

When has the Fed ever managed this sort of withdrawal from a position of such over-creation of dollars?

Volcker wasn't correcting an over-supply of dollars, so much as breaking an already-existing psychology of inflation. And rates were much, much higher.

Now, we have a still-sluggish economy and a Fed seemingly hooked on dollar creation, at whatever cost, to prop up an increasingly-statist economy.

How is that something that is desirable or able to be easily ended?