Screw it, let’s panic.

We’ve been waiting for a move in the green line substantially up or down from the trend. That would be a nice indicator (two months delayed) of an inflationary explosion or deflationary collapse. From a strictly monetary perspective, neither option seems to be winning right now.

If we examine prices, it is possible that money has moved out of certain asset classes and into other asset classes that we, as a society, are more price sensitive to. Wheat prices have spiked recently, though they are still down significantly from their peak in 2008. This could be due to export restrictions in Russia, and not money movements. Coffee prices are way up, though this too might be due to supply issues. In general, food and beverages seem to be increasing in price. These are the prices we care about on a day-to-day basis. Despite this, CPI growth is rather muted. Part of that is due to the fact that the CPI is weighted in interesting ways and then built up out of statistical voodoo. Part of it is due to the stickiness of consumer end prices.

The Fed seems to be embarking on a journey of new and unproven policy decisions. However, those calling for hyperinflation may still be too early on the call. Prices thus far have been more sensitive to politics, trade, and normal supply and demand issues than they have been to actions by the Fed. And the Fed’s journey may not be into territory all that unexplored. QE2 seems to be more of a continuation of current policies than something new. The Fed’s POMO activity is a weekly occurrence. They are now the number 2 holder of US treasuries after China. They surpassed Japan today.

It isn’t that I don’t believe this will end badly. I certainly think that’s the case. However, when it ends is a huge guess. We can panic now, if we like, but it might take some serious determination to maintain a level of panic into the end. It could be days, months, or even years in the future.

(source: St. Louis Fed: FRED Graph)