One world is the real world, which exists all around us. The other world exists only in Greg Mankiw's head, and is filled with big, terrifying "inflation monsters".
In the real world, savvy bond traders are forecasting low inflation as far as the eye can see. In Greg's head, it's no different than the Miami condo market circa 2006. Just the latest bubble.
I'll give Greg the mike: "The Federal Reserve has also been rapidly creating money."
Now let's see what the Federal Reserve's Balance Sheet Says (in millions):
Dec 30 2009: 2,278,896
Jan 6 2010: 2,275,340
Jan 13 2010: 2,284,693
So, over the past year, the balance sheet has increased by less than a billion dollars. On a two trillion-plus balance sheet, this is chicken feed my friends. Now, the Fed did increase the balance sheet quite dramatically between Sept. 2009 and Dec 30, 2009. But it's been more than a year since then, and in 2009, the core CPI was up a staggering 1.8%. With high unemployment keeping wages pinned, hard to see the inflation monster is. Might that be because, like the Tooth Fairy and Santa Claus, he doesn't exist?