Mark, We have huge inflation, it just doesn't all show up in goods inflation. I do believe that goods inflation is understated, but that isn't the main problem, IMHO. The problem is too much easy credit chasing too few stocks and too few real houses. That has caused bloated stock and home values beyond any relationship to the underlying health of the economy.
The growth in credit has to keep increasing at ever higher rates to maintain these bloated financial asset prices. But, it can't given the weakness in the dollar, our trade deficit and the indebtedness of Corporate America and households. We cannot use the extra credit to build capacity, because we have a glut of capacity. So, we use it to gamble: buy stocks and houses that are already overpriced, leverage our corporations, and go into debt to buy crap we don't need. This has to end badly and stocks and real estate have to go back to fair value. In fact, they will probably go below fair value once the crash hits, due to the leverage involved and the panic those losses on money we owe will cause. So, this type of inflation is just as dangerous as goods inflation, if not more so. Most depressions are caused by creation of excess credit and financial asset inflation.
MB |
