Monday, September 14, 2009

Deflation or Stagflation: We are now in a scenario where there are no good choices, just less-bad ones.

SHOOT: The best case scenario is inflation...and at least one double-dip recession. I foresee a multiple dip recession. Great article.

ALPHA: The reality is somewhat more nuanced. When faced with the possibility of deflation, I can almost hear Bernanke saying, "Sir, I have not yet begun to print!" The Fed has more room to print money than most of us realize. How much more? My bet is that we'll find out. Will they print too much at some point? Probably.
clipped from
Saturday I got another letter from Peter Schiff, who seems to be ubiquitous. He says the rise in gold is because of rising inflation expectations among investors. Gold is predicting inflation. Maybe, but the correlation between gold and inflation for the last 25-plus years has been zero.
I rather think that gold is rising in terms of value against most major fiat (paper) currencies because it is seen as a neutral currency. The Fed and the Obama administration seem to be pursuing policies that are dollar-negative, and they give no hint of letting up. The rise in gold above $1,000 does not really tell us anything about the future of inflation.
The answer to the question "Will we have inflation in our future?" is "You better hope so!"
It is not a matter of pain or no pain; it is a matter of choosing which pain we will face and for how long, and perhaps in what order. As I wrote a few weeks ago, like teenagers, we as an economic polity have made some very bad choices.
 blog it

No comments: