Federal Reserve chairman Bernanke testified last Tuesday (July 21) that there is no inflation danger even though the Fed is keeping short-term interest rates very low and the banks are awash with excess reserves (lendable cash), to the tune of some $800 billion, which if used for loans rather than left sitting in the banks' accounts in federal reserve banks would increase the amount of money in circulation by a considerable amount. Bernanke explained that if signs that unwanted inflation is looming appear, the Fed can head off the inflation in a variety of ways.


Continue reading this post by Richard Posner at our Correspondents blog here: