Ben Bernanke: Inflation Could Be a Self-Fulfilling Prophecy
This morning, Ben Bernanke delivered an address to an international monetary conference in Barcelona via satellite. His message was mainly one of optimism laced with caution.
One of his cautions was this: That inflation could be a self-fulfilling prophecy. Yahoo News reports on the idea behind inflation as self-fulfilling:
If consumers, investors and businesses believe inflation will continue to go up, they will change their behavior in ways that aggravate inflation, turning it into a self-fulfilling prophecy.
Were consumer prices to keep climbing over a sustained period, that might “lead the public to expect higher long-term inflation rates, an expectation that could ultimately become self-confirming,” Bernanke said.
This is a good point. Be frugal, and plan for the future, but don’t panic. Get your personal finances in order, but be calm about it.
As long as you are prepared, and as long as you are reasonable about the steps you take, you will find that you can beat inflation. And if we all take a measured approach, it is possible that inflation may not happen. Perhaps we could make that our self-fulfilling prophecy.
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