Summary
A wise friend once told me that a cobra is not a danger in and of itself. It is only a danger if one is not aware of it's presence and if, upon becoming aware of it's presence one takes a wrong action and is bitten by the cobra. So it is with inflation. It is not so much that it is here, it is reaching awareness of it's presence and taking the correct actions to deal with it properly.
Analysis
Inflation is as much a force of the economic universe as gravity is a force in the much larger universe of which our planet and thereby ourselves are a part.
Policy makers and governments represent the real danger in terms of inflation as it is sometimes their lack of acceptance/awareness of this economic force and what it is producing in terms of economic effects that will have negative impacts.
Worse yet are actions taken without sufficient study and projections in a broad enough view to cover the many and varied results the planned actions are likely to have once taken.
We have historic examples of how devastating the lack of good policy decisions dealing with inflation can be to an economy that they are not required to be stated here. What does need to be stated however, is that we are facing some new realities today that make it even more important to take correct actions to deal with inflation, perhaps more than other governments and policy makers have had to deal with in the past.
In the past, inflation, even though it is an ever present economic force as I have postulated, nevertheless, it's presence was commonly felt in isolation. By that I mean, while inflation had reach out of control proportions in some parts of the world, other parts of the worldwide economy were not experiencing these effects. In some historic instances, inflation was contained even to one country.
We also have a reference point in history of what a single geopolitical event like the first oil shock of the 70's brought on by the Iranians. While this was a global event and had global economic impact, it was momentary in economic terms and was not as pervasive in terms of the length of time it's effects had to be dealt with.
In the new globalized economy and more precisely, with the unprecedented growth of economies of once "third world" economies producing dramatic increases in the numbers of consumers worldwide, we are in a new paradigm of the inflation equation.
The dangers as I see them are more pronounced at this point because there is a lot of unawarness in a worriesome number of policy makers and their advisory groups of the new paradigm the world economies have entered.
It is also worriesome that there are disconnects among Central bankers and governments who have not realized that this is no longer a problem for one economy or several economies to deal with. It is an issue that requires some level of coordinated actions among all concerned since the potential effects of this current inflation are now global in nature as opposed to single economy problems or even regional in nature.
Much of what is feeding the "snake" at this time is related to a much broader group of key strategic world commodities( energy complex and food complex for some examples) and similar key economic issues (banking and credit sectors and consumer demand issues for some examples in this space) that unless some reasonably coordinated and agreed upon actions are taken disconnects are going to happen and the "snake" is not going to be dealt with, rather will find a place to wait for an opportunity not to escape but to strike at an unaware and unprepared target.
Greater dangers lie even more hidden in terms of the types of economic models being used by a lot of planners both corporate and government leaving one to wonder about the action(s) that are being discussed to deal with this particular "cobra" that is definitely in the house, not just in the backyard.
