we are now a debtor nation, like any debtor, inflation is advantageous to us over time
Yes. Or, rather, it is advantageous to the politicians who allowed debt to get out of control. At the same time it is a danger to individuals who count on their savings to support them in the future. We are in the same boat with other dollar holders, both foreign and domestic.
Widespread selling and some form of repatriation of the USD's floating abroad is indeed a prescription for inflation. And once it accelerates, who knows when - and whether - it will stop.
I am inclined to expect a deflationary episode - in dollar terms. We have a strange situation right now. We have an abundance of inflationary signs, many prices are rising. However, in order for inflationary expectations to take root, the population must have the ability to PAY those increasing prices, as they keep rising. This component may not be present, since our consumer is overstretched - AND also, because of Globalization and the availability of cheap labor employers are not under pressure to increase wages.
Increasing prices when there are no buyers is likely to lead not towards inflation, but rather towards a decrease in consumption -- with all the consequences (one of which may be prove to be an unexpected, albeit temporary strength in the USD).
If that happens, our politicians will get to work and use "unconventional" methods of introducing liquidity, which will probably trigger an inflation - for real.
No one is smart enough to foresee what will happen, and HOW it will happen. To bring it all down to a more practical level, right now it is probably not a mistake to keep a significant part of one's assets in USD's. The sentiment towards the USD at this time is extremely negative, which increases the odds for future strength. However, it appears that - in the longer term - to own too many USD's may prove to be a painful ride. |
