Zachary Scheidt

Buffett's Latest NYT Op-Ed: The Greenback Effect

Market ace, I think the contraction in credit is certainly helping to hold prices lower for the time being, but this contraction is very small compared to the long-term effect of the new dollars in the system. The loose monetary policy has not been effective yet because the velocity of money has been so low. But once the economy begins to turn (I say Economy - not Market) the velocity will pick up and inflation will quickly become a serious issue.

At that point, the Fed will have the dubious choice of either raising rates to fend off inflation (which would kill the expansion) or keeping rates low to continue to encourage the recovery (which leaves us with inflation). I'm pretty sure I know which direction will be chosen.

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