Inflation Or Deflation. Which Will Carry The Day?
Well my friends which is it and which one will be victorious? In the course of my business day this debate rages and almost boils over to and including heated arguments as signs do point to either scenario possibly unfolding. I will attempt to postulate and form a salient conclusion for you so as to keep us prepared.
In a perfect world, a small dose of inflation ie. 1.5% +- would be optimum. To the uninitiated on this subject, a stop at the gas station cries out inflation quite loudly and painfully. To those who purchased a home between 2004- 2007 the opposite is the case and the pain is also substantial. Two competing forces leaving us all the worse for the wear.
Many pundits decry the Federal Reserve Bank and Congress for the borrow/print/spending binge of the last three years. A case can be made that it was both necessary and yet unnecessary. I believe the latter to be the case as I have yet to see any visible evidence of any real success, excluding the reliquifying of the Banking system . But the Banks now sit on an estimated two trillion dollars on deposit with the Fed and are cautious to lend to say the least. There are numerous reasons for this and we will comment at a later time.
So the point is these funds are out of circulation and in my opinion so long as they remain there, inflation of the magnitude I am hearing (Hyper) seems unreasonable for now at least. We are also faced with a real unemployment rate in the area of 18% and of course so long as this remains, Wage Inflation, a key component in the inflation spiral is beyond tame and currently of no concern.
Consider, attempt a request of a pay raise from your employer based on the current fuel price. You get the point I believe. These two factors also have an impact on the Weaker Dollar indicator leading to inflation. The bottom line here is many factors must align for this theory to turn to reality. Yes I agree we have increased prices currently on many items and with the growing middle class in many former/still third world countries, this is to be expected. The markets will ultimately balance these factors out with more supply to meet demand. These countries still have a long way to go and we have the time to prepare to accommodate them.Continued on the next page