This is the Cato Daily Podcast for Tuesday, March 1st, 2011. I'm Caleb Brown.

The destruction caused by inflation isn't just rising prices. It's that prices don't all rise at the same time.

The process of working out these relative prices

is costly and Federal reserve policies of the past two years have worsened that challenge.

Jim Dorn, Vice President for Academic Affairs at the Cato Institute, says inflation leaves

all economic decision-makers at a disadvantage.

There have been a lot of price increases globally, various things, agricultural goods, oil most recently, how does an inflationary

expectation alter people's thoughts about those price increase, those kinds of price increases.

Well when you have a price increase in a specific commodity like oil, for example, it's in dollar terms obviously. So it's hard to decipher and

separate out the real factors from the monetary factors sometimes. Obviously if there's inflationary expectations,

then the price of oil and other asset prices will reflect that rather rapidly.

The exchange rates will also reflect that. The foreign exchange

value of the dollar, for example, if inflation is expected, people won't be as

willing to hold dollars as they were before. And they'll also increase the price of oil

which is priced in dollars. So right now the Fed is basically engaging in a

quantitative easing by purchasing longer term government securities.

This is artificially holding down interest rates

and helping the government basically spend beyond what it takes and in taxes.

This is dangerous because if you monetize the debt for any period of time, like they did in

Zimbabwe for example, you get inflation, rather serious inflation.

So this could present a signal to the markets that inflation is further down the road,

and you don't have to wait four years

...