An EOY prediction from Kasriel, of Northern Trust: inflation to reappear in 2H of 02:
It's going to be MIGHTY HARD to have "inflation", or a weakening of the USD, when we're in a major currency battle with the Japanese, who will, eventually, be forced to devalue and monetize their tremendous national debt (held mainly by Japanese pension plans and denominated in Yen) by devaluation of their currency.
This post, made in response to yours, describes the scenario succinctly:
Message 16835414
Japan's national public debt is now approximately 140% of their GDP. As Japan's GDP contracts, that debt will grow in percentage to GDP, along with the additional useless governmental stimulus implemented by the government.
I opine that it's now more of a battle within Japanese political circles to avoid being the party responsible for devaluing the roughly $12 Trillion in savings held by Japanese citizens (equating to the majority of their retirement funds), than it is of making the hard decisions necessary to economically restructure their financial and corporate system.
Added to that equation, the rapidly aging population, and decreasing tax base Japan is facing in coming years (1 in 4 will be over 60 within the next 10 years), a devaluation is even more likely. The only question is when, not if.
And the financial turmoil that results will likely add additional upward pressure to the USD, which will make American goods even more expensive overseas and limit our economy's ability to grow external of the domestic US market. That's good for US consumers and importers of components and energy(and exporters.. :0), but bad for the US trade deficit, as represented by US corporations seeking export markets. Every other nation in the Asian region (China especially) will be under pressure to devalue their own currencies in order to maintain market share of the US market vis a vis Japan.
Thus, willingness of foreigners to hold US debt will continue to the point where the US consumer is now longer able to service that debt (becoming unemployed due to cheap competive labor overseas). This is already becoming an issue in Mexico, were the average $1.50/hr wage is being undercut by the average .25/hr wage in China.
The US will be the last one standing as foreign savings flee to the safe harbor of the USD, but when the US can no longer compete, or it fails to erect "fair trade" tariffs to protect US industries from predatory devaluation of currencies, the rest of the world could likely see another global depression similar to the '30s.
Or, we could see the US return to the status it held at the end of WWII, when it commanded a 50% market share of the global economy. It will be interesting to see how the US competes in the coming years facing these challenges.
Bottom line? We'll see "inflation" as more of a collapse in confidence in the overall economy, or as an indication that foreign economies are restructing to an extent that makes them greater harbors of value and "safety" than the USD. And should that not occur, then we'll see a return to the "shiny yellow metal" that indicates that our economic structures are about to regress 200 hundred years where how much you can dig from the earth decides how fast you can grow economically.
Hawk |
