Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: russwinter who wrote (2168)	3/16/2004 1:43:17 PM
From: Carlos Blanco	Read Replies (3) of 116555

great inflations though don't require robust employment markets and consumer demand. I think that's the trap you are in here. There are many, many historic inflations where there was abject misery, and very poor and weak economic conditions (in fact that's the rule). Most of them have big debt loads. You guys go on and on about "income", and "jobs", but I see very little positive correlation between those variables and price stability issues. being argentinian i can testify that this is quite correct and the most likely outcome. government ability to debase currency and run deficits is not to be underestimated regardless of what else is going on in the economy. while growing up i have seen inflations and devaluations take hold many times in spite of weak labor conditions, tight credit markets, and recessionary downturns. politicians will always choose and facilitate the debasement route when debt becomes untenable. the fact that the majority of the voting population and the govt itself is up to its eyeballs in debt that can't be repaid is a 99.99% guarantee that spineless politicians will ease the debt problem by spreading the burden across the entire population via inflation. that doesn't mean that prices go up in all categories. it's perfectly reasonable and logical that different markets have different supply/demand characteristics at any given time. deflation and inflation are not black-and-white or mutually exclusive. talking about rising or declining prices in general or trying to assign a global state of being to an entire economy is almost useless for investment or business purposes. the trick, as with everything else, is to figure out and buy the specific areas that will be most inflated. stocks and real estate in the 90s and commodities in the 00s. when the powers that be announce that they will fix rising prices via controls or rationing, that's when you know the situation is entering the runaway phase and you should be 100% in gold. when the price controls break and/or black markets start to emerge, government will get exposed for the powerless nitwits that they are and the resulting loss of confidence will cause the massive flight out of paper currency. i have always found it laughable that, in most places, govt paper is considered to be the least risky asset...that fallacy will be proven wrong with very painful consequences.

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