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With the economy showing hints of a recovery, the threat of inflation is testing policy makers at the Federal Reserve as they work to determine how quickly to unwind emergency moves taken during the height of the financial crisis. Paul Solman reports.
As we heard, Federal Reserve Chairman Bernanke defended some major government interventions of the past year, but those actions have stoked fears of inflation. And that's the subject of a report by NewsHour economics correspondent Paul Solman. It's part of his ongoing series on "Making Sense" of financial news.
PAUL SOLMAN, NewsHour economics correspondent: An Italian-American senior center in New Haven, Connecticut, just a year ago, the day after Lehman Brothers went up in smoke. But what had folks come here to talk to us about? Inflation.
The cost of living is so high, so I needed to go back to work to survive.
Food goes up. Your gas is going up.
It's harder than it was last year. I used to get a pound of ditalini macaroni. It was 50 cents. It's a dollar. It's one dollar now.
That ditalini she's taking about, I've seen it $1.39.
I wouldn't buy that.
That very same night, on both the New York Times' Web page and ours, posts entitled, "Is it the end of the world as we know it?"
It's the end of the world as we know it…
Were we tumbling into a financial crisis of Great Depression-like proportions, with plunging prices in stocks and housing already having forced government bailouts of Bear Stearns, Fannie Mae, and Freddie Mac?
Yet despite all this, rising prices were still paramount to the minds of most folks here.
We were planning a trip to Italy with my wife, so we decided that we had to cut down a bit, so I left her home.
The humor here, from macaroni to matrimony, suggested that oil and food price hikes and a rising budget deficit had folks more spooked about a declining dollar than almost anything else.
In Oakland, California, gloom-and-doom economist John Williams was so afraid of the buckling buck…
JOHN WILLIAMS, Shadowstats.com:
I buy gold coins as a hedge against inflation.
CHARLIE MAMMOSER, Northern California Coin Exchange:
These are called gold eagles.
Williams had taken us to his local gold dealer, Charlie Mammoser.
A lot of people like him, Charlie?
Yeah, there's quite a lot of them actually, especially the way, you know, the economy's been going, and the dollar's been down, and oil's been up, and gold's been running crazy.
What was gold at the time, per ounce?
Right now, gold is $750.10.
The price had actually been higher, but Williams was unfazed.
Whether you buy it at $750, $700, $1,000, it's going to be a buy over the long term, because long term we have a terrible inflation problem ahead of us.
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