A noted economist has suggested that the Fed needs to set an inflation target far higher than the one announced yesterday. Kenneth Rogoff, formerly the chief economist of the IMF, said that the rate needs to be 5% to 6%.

The good professor was one of the few who called the crisis ahead of time and now feels that debasement of the currency would help solve the problem. He feels that fiscal stimulus has a role to play in boosting consumption but still feels that monetary policy will have to provide the ultimate solution. 

There are no good options at this late stage after years of errors. Standard monetary relationships have broken down. “Policy is in effect flying blind,” he said.

That’s kind of a cryptic comment from Professor Rogoff. On the one hand he looks to monetary policy to solve the problem and on the other suggests that the policy is now dysfunctional. I may be interpreting his comments improperly and perhaps he sees something as simple as flooding the economy with dollars as the appropriate response.

Whatever, in my humble opinion, he is once again ably predicting the future. Inflation always has been and always will be the method for erasing an excess of leverage whether that leverage exists on private balance sheets or government balance sheets. Just start preparing for it.

more: here