"I think I'm prepared for inflation, which HAS to be coming."
I agree.
But there are two indominable forces holding it back right now: China's currency peg to the dollar (and the 'unofficial' pegs of many of it's Asian neighbors), and the central bank policies of China & Japan (Japan having to play 'keep up with the Jones' with China... not wanting China to get an advantage because of it's currency over Japan's exports).
China and Japan (NOT private investors!) bought massive amounts of US Treasury securities last year, and halfway into this year, to recycle their export profits and so that there would not be pressure on their currencies to rise.
This keeps some support under the dollar (and keeps their own currencies from rising), and keeps their exports competitive in the world markets --- and guarantees job losses in American manufactures.
But to keep the dollar propped up, they have also suffered massive losses on the value of all those Treasury securities they bought. (At some of our monthly treasury auctions, China and Japan were practically the only bidders.) Despite all that buying, the dollar fell anyway, and so did the value of their purchased Treasuries.
At some point --- and that point may have already been reached, Treasury purchases by China and Japan were SHARPLY down this summer --- the pain will be too great for them, and they will have to allow their currencies to rise to more natural values.
When they allow their's to rise, the dollar will fall faster and further... and since we still have MASSIVE current account deficits to finance, the interest rates offered on our Treasuries will rise sharply.
Then, the inflation shows up at the consumer level (it's already been rising fast at the producer price level for two years now), and likely also: a new, deeper recession. |
