ME-flation

[Country]

http://www.morningstar.com/Cover/videoCenter.aspx?id=353906

[Delawhere Jack]

Interesting take on the situation, and it parallels what I've come to understand in the past few months. We are seeing inflation and deflation concurrently now. Inflation in the daily necessities - food, clothing, fuel - and deflation in those asset classes which have traditionally been purchased on credit, such as housing. The big question is how long does the deflationary component of this dynamic last? I think that the FEDs effort to reflate housing is in fact inflating equities and commodities instead. You need only look at the DJ at 10,950 today to see where the FEDs efforts are settling out. Housing is still in free fall, unemployment is much worse than reported, yet the market just had it's best September in 60 years...!?!?!? I can't help but wonder if this is an unforeseen occurence or if it is by design. When your paying $25 for a pound of ground beef, that $600k - 1200 sq ft middle amerika home won't seem so expensive...

One of the attorneys that I work with went totally into treasuries before the crash, when the DJ was over 14k, he's still buying treasuries. He is rock solid in the deflationary camp. He told me yesterday that his grandfather followed the same course in the late 1920's when he foresaw the market crash in '29. By the mid thirties he was able to buy up emormous amounts of farmland in VA, there is now a small town in the area that bears the family name.

I can agree with him to some extent regarding our current situation, but I still believe that this thing is going to go inflationary in a big way at some point, my only question is when.

[argent_pur]

A good article, and it does make sense to a degree...

Based on what I know about how GDP is calculated (C+I+G+NX), we all know, regardless of political camp, that eventually taxes will have to come up and government spending (G) will have to come down in a meaningful way to close the annual deficits and actually start paying back some of this debt. Increased taxes mean less disposable income, so consumption (C) goes down. C is 70% of GDP and G is about 20%...this is the deflation Ben wants to avoid so much. It will happen so the only solution will be for the Fed to buy bonds (i.e. "print money") at a terrible rate, ending up in high inflation (I hope not hyperinflation, but we'll see).

And, honestly, it's no more than we deserve. Our standard of living (think about everything that is included in that phrase from our roads to our military to our social programs) has not been justified by our productive capacity for some time, thus the need for the government to borrow to finance the rest. There is no magic hat, more consumption today means less tomorrow, and since our major manufacturing jobs are all leaving, can we really expect an ever-rising standard of living based on a service (70% of aggregate expenditure) economy making sandwiches and buffalo wings? The world doesn't need them that badly...