It is largely a matter of degree. I think it’s difficult for the public to think about inflation clearly. They have this bifurcated view that inflation is either stable or wildly out of control. Have we printed a lot of money recently? Absolutely. Is it going to be catastrophic if inflation is 3% or 4% instead of 2%…no. It will be bad if you hold 10-year debt at 70 bps, but aside from that we’ll probably make it out okay. Plus, the brakes will work. A small increase in rates in this economy would be more than enough to snuff out any inflation we might see.
Can we continue doing this forever? No. Do we need to dump our portfolios? Decidedly not.