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Strategies & Market Trends : US Inflation and What To Do About It
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To: Archie Meeties who wrote (14)4/27/2010 4:05:03 PM
From: RetiredNow  Read Replies (1) of 1504
 
That's what is very interesting to me. Lot's of economists are currently saying that inflation will be tame for the next couple of years. But how in the world can that be? Here's why I think they are misreading the situation:

1) Prices are rising: I routinely read articles by US manufacturers who are reporting that the inputs to their processes are getting more expensive.
2) Debt and deficits are rising: Our government has increased the national debt from $5T to $13T in 1.5 years and printed money along the way at an unprecedented rate. Deficits go out as far as the eye can see.
3) Leading indicators are rising: ECRI's Future Inflation Gauge continues to tick up inexorably. It isn't flashing red yet, but the trend is undeniably up 102 for Mar'10 up from 99 for Feb'10 and up from 80 a year ago): businesscycle.com
4) Easy money policy continues: The US Fed has kept rates at near zero for a prolonged period and still has no plans to raise it. The odds of them overshooting is high considering that unemployment is so high and they are likely to focus on bringing unemployment down before they worry about inflation. By the time they make progress, it will be too late to put a lid on inflation without a lot of pain.
5) Free markets are signaling inflation: Yields on long bonds are already turning upwards based on market pressures. So the market is already telling us that inflation pressure exists. minyanville.com

So my guess is that inflation is coming and we may have to have another Volcker type period of high rates to squelch it back down to acceptable levels. Bernanke is an easy money Fed with no spine to do what Volcker did. So he'll move to late and won't move hard enough when he realizes he has to, which means inflation will get out of control.

Just my two cents.
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