I thought “Helicopter Ben” was a pretty good nickname for the Fed Chairman, but somebody dreamt up an even better one for him and the whole Federal Reserve Board: “Bennie and the Ink Jets.”

Printing vast quantities of money is what they do, but they also have to perform the magic trick of convincing people that this avalanche of paper money has nothing to do with inflation. Bernanke, of late, has tried to perform this bit of legerdemain by blaming inflation on “inflationary expectations.” In other words, if we could just keep inflationary expectations “well anchored,” then inflation would stay in the acceptable range. (Why there should even be an “acceptable” range for inflation is a really good question).

So what would take to rev up inflationary expectations? How about this: suppose you were earning five percent on your savings account while, at the same time, the inflation rate was ten percent. Naturally, you would save as little money as possible and spend it as fast as you could. In fact, since asset prices would be outstripping interest rates at a healthy clip, you would borrow like crazy and pour the money into real estate and the stock market and other things whose rising prices would let you make a profit and pay the money back with cheaper dollars. (Remember that prices going up and money being worth less are the same thing).

But wait a minute. Isn’t that EXACTLY what people are doing right now? The answer, of course, is yes. The Fed labors mightily to “anchor” inflationary expectations by relying on the government’s phony CPI numbers, but people aren’t stupid. The KNOW that saving money is the royal road to ending up poorer than when you started. Market “bubbles” are as much about self preservation as they are about greed.

It should hardly be surprising that the federal government is even less interested in saving money than the average Joe on the street. The Bush Administration seems to think that the best way to pay for a war is to put it on the national credit card. And the government borrows and borrows and borrows as if it will never have to pay the money back. And, in fact, since Bennie and the Ink Jets control the throttle on the dollar printing press, it is very likely that we will pay our creditors back with toilet paper.

So the Fed not only has to “anchor” inflationary expectations at home, but they have to also do it abroad. Otherwise our creditors will start dumping their dollars and/or stop recycling them back to the U.S. by purchasing Treasury debt. That would force interest rates much higher and create a major risk of either another Great Depression or a hyperinflation that destroys the value of the dollar completely.

If I make it sound like the American economy is precariously balanced on a knife’s edge then you have been paying attention. Congress and the Administration have created a worldwide financial morass, but they hope that Helicopter Ben to talk our way out of it. Good luck to him and to us.

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