This morning I saw this article from Jesse Eisinger about Paul Singer and other hedgies paranoid fantasies about encroaching inflation.

His argument can be summed up as: just because we don’t really see inflation it doesn’t mean that the inflation bugs’ paranoia isn’t justified. It’s just that they simply observed that every time Fed gets involved with its monetary policy it ends up inflating some kind of bubble. As an extension of that thought, he argues, all those bank-saving maneuvers and stress-tests were really for the show, to restore public confidence, but really did nothing to improve banks’ balance sheets.

Krugman weighed in on this, of course.

Sorry, but I don’t buy that.

For one thing, if you want to claim that the stress tests were all fake and the banks were truly insolvent, shouldn’t we have seen a reckoning by now? I’d say that in retrospect it’s clear that many assets really were temporarily underpriced thanks to the market panic, and that once the panic subsided the big banks were revealed to be in better shape than many people (including me) believed.

Which really brings entire discussion into the metaphysical. Does something exist if we don’t observe it? Even if you have to contort yourself to find inflation in the Hamptons and in Aspen, it doesn’t mean it exists. Not the way Paul Singer and the hedgies would like it to exist.

They almost remind of people who see Jesus on every piece of toast. They see it because they want to see it.