In my first blog post, “What I learned Today About the Global Financial Crisis,” I stated that we could assume we were in a deflationary period once the Dow dropped below 8000 and stayed there for two to three months. While it’s only been a month below 8000, it’s now time for another warning. On hyper-inflation. No one thinks that central bankers will tolerate a Japanese-like lost decade, so what will they do to arrest deflation once they’ve chopped interest rates to zero?
The next step for central bankers is ‘quantitative easing.’ That means that central banks use their own money to buy treasuries. While they are not actually printing new money, it has the same effect on increasing the money supply. The risk is they will increase the money supply too much, and overshoot inflation goals. The Bank of England started quantitative easing last week. Look for the Fed to do the same soon.
So what’s this mean to IT managers? Well, all your costs will increase, so budgets already slashed will be under more pressure. Contracts with inflation clauses deserve special scrutiny. Make sure there’s a cap on annual inflation-adjusted price increases. Pull out all your old strategies for dealing with inflation — and go talk to some gray-beards that managed through the late ’70s and ’80s. That’s right — those old guys you just laid off.
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