I think the whole "flation" debate is overrated. Let's be specific, here. Most of us are worried about individual asset pricing, not the "general" level of prices. What most want to know is what will happen to the prices of:
1. houses
2. stocks
3. oil
4. gold
5. other commodities
6. manufactured goods
7. bonds
8. services
In global terms, prices for #1,2, and 6 will fall hard regardless of actions to attempt to increase debt levels further. Prices of #3, 4, and 5 will be relatively stronger, but when the recession sets in, they will fall as well.
Prices for #8 will likely continue to rise as the cost of insurance and pensions are no longer lessened by the financial market levitation of the past few years.
And whether the coming debt contraction does it, or just the constant flow of dollars pumped into financial markets by the Fed does it, the demand for bonds is likely to remain firm, keeping interest rates low.
I challenge anyone to argue with the fact that interest rates are at historic lows despite unprecedented real estate inflation, commodity inflation, and services inflation. If the inflation of the past five years hasn't demonstrated the disconnect between the real world and bond pricing, I don't know what will.
Interest rates don't respond to present inflation any more than gold prices do - which isn't much at all. People that argue otherwise are just ignoring the reality. Since the gold price high, the purchasing power of the dollar has eroded steadily, yet gold and commodities in general witnessed a decades-long bear.
BC |
