The discussion is really about inflation/deflation.
Deflation I believe is artificial, almost exclusively limited to manufactured goods. This deflation is imported from mainly Asia and China specifically. Costs of govt. services, health, insurance, etc. are all still going up.
This imported deflation is so powerful, it permeates the economy. Coupled with the trillions lost in mis-spent investments in high tech, the price of deflation is still being paid.
The Fed solution is to print money, and as long as they are doing that, it is an obvious testament to the deflation that is raging. However, implicit is the inevitable result of eventual inflation to come, and that could be a dooser.
Meantime, the $US continues to fall as money is being created, and debt and deficits rise. Couple this to the trade deficit, the dollar's decline is written.
The Fed will sacrifice the dollar to keep the financial markets from collapsing. This seems to be their main focus right now. Even so, unemployment is inching up, and much of the liquidity is fueling overseas production.
It seems like air is being let out of one balloon only to inflate another. Interest rates are too low, causing inflation in finance and big ticket items. I believe we are in a precarious position, solving one problem may well create a bigger problem somewhere else. Eventually there will be inflation...the decline in the $US guarantees that. Mitigating that however, will be the attempt at competitive devaluations world wide. This attempt will fail, because it isn't possible to devalue a country's currency at will. (Nor can you strengthen a currency at will).
As long as the US dollar is supported internationally, without fully paying the price of monetary inflation, they will continue to inflate! Only when the dollar's dominance is seriously questioned will the $hedgemony end, and its decline seriously begin. Gold and Commodities are already broadcasting that eventualilty. The entire world will pay the price of years of inflation.
My thoughts tonight FWIW.....gotta run, no time to edit.
Phil |
