It may not be Japan that falls victim first to currency collapse, as Russia is poised on the brink of 1998-style disaster. The nature of inflation in Russia right now is the basis for orthodox economics and its proposition under rational expectations theory. In fact, Russians at this very moment are “proving” the theory:

Russian consumers flocked to the stores Wednesday, frantically buying a range of big-ticket items to pre-empt the price rises kicked off by the staggering fall in the value of the ruble in recent days.

As the government considered ways to ease the selling pressure on the ruble, which has slid 15 percent in just two days and raised fears of a bank run, many Russians were buying cars and home appliances — in some cases in record numbers — before prices for these imported goods shoot higher.

When a central bank wants a little “pump priming”, as in not just Japan but all the orthodox institutions, this is what they expect. By making people think they can create inflation (what is NGDP targeting if not that?) central bankers expect people to act today on those “nurtured” expectations.

The contention has never been whether or not central banks can achieve this kind of manipulation (for our own good, of course) but rather how people respond to such changing expectations. There does seem to be a very large scale variance where behavior is expressed far differently under different degrees of debasement. At higher levels, as Russia now, spending seems to be the most prevalent response. At lower levels, like what is most often sought under orthodox theory, inflation expectations are not limited to real goods, often traded for financial “investments” (both personal and corporate) meaning “inflation” as an economic concept is far more pliable than commonly accepted in the dominant canon.

Beyond that, there is no clear pathway to how such major redistribution attempts foster a positive economic response. After all, you would be insane to call the situation in Russia a net positive.

But the orthodoxy at the Fed and Bank of Japan (or ECB as Mario Draghi talks incessantly about “deflation”) would counter that they are under no such mission to create such drastic inflationary pressures as to bring down the currency. Instead, they only want “a little” inflation to act as a positive catalyst to get things moving. In other words, they intend to inject only a small measure of negative pressure to gain positive momentum.

The hubris of such precision is the trail of economic ruin. It was, as I recalled yesterday, such intentions that led, in good part, to the beginning and persistence of the Great Inflation in the 1960’s and 1970’s. Economists then thought as they do now that tolerating just “a little” inflation would lead to better and fuller employment. It most certainly did not. That we see little actual and sustainable economic gain in this century, a century of massive asset inflation, is the mirrored result of the same “little” inflationary supposition.

Make the economy a little bit worse so it can get better? The problem is demand for the sake of demand, to which Russia is literally exploding in “demand.”