DOES BEN BERNANKE REALLY LIVE ON THIS PLANET?
 BLOOMBERG - He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.” “Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Wars cause inflation - In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden. How did it happen? The Treasury spent like crazy on the war, creating money to pay for it, then pretended that its spending was offset by complex Liberty Bond sales and admonishments to citizens that they save more. In 1945 after WWII, all seemed well: Inflation was 2 percent, at least officially. Within two years that level hit 14 percent. During the Viet Nam war all appeared calm in 1972, too, before inflation jumped to 11 percent by 1974, and stayed high for the rest of the decade, diminishing the quality of life for the whole country. We paid the higher interest rates needed to reduce the inflation, and got a house with one less bedroom.  The last great inflation and correction happened in the late 1970s and early 1980s, just long enough ago that most adults in the financial markets don’t remember it. We can debate whether today’s challenge resembles that faced in the early 1980s, or something worse. But one thing is clear: pretty soon, we’ll all be in deep water. 
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