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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (8795)	2/27/2004 8:55:30 AM
From: russwinter	Read Replies (4) \| Respond to of 110194

Since I wrote the essay I've received some contact by professionals that have a greater understanding of the dynamics of inflation than I, or any of us here. It's too bad they are here right now, because they could offer great insights. One aspect that's amazing about great inflations though is how rapidly they come on. There's a book I'm going to read on it, called "Triumph of the Optimists". But let me give you the gist of what I think has happened. I think there's been an underlying inflationary maladjustment all along. Picture it as a deadly virus dormant in the sick patient's body. Of course as you've pointed out the patient has other afflictions too, including deflationary ones. And the later has received extreme treatment. What's interesting about the history of inflation is that it ALWAYS arises from the treatment of these other afflictions. Interestingly, the servicing of high levels of debt is the common theme. The patient gets a little short term relief, but then policy makers just never back off on the medicine, or keep observing the wrong symptoms. And in each case there is always a Bernanke or BOJ type on the scene. That's what is happening now. Despite all the stirrings the Bernankes of the world are on the wrong page. IMO the main drivers of this inflation are US credit driven demand coupled with Asian money printing, primarily the BOJ. The inflationary liftoff occurred in the early fall. By year end there was a pretty good fire going. As 2003 wrapped up, the $173 billion that BOJ spent (printed) in it's currency interventions is the number to key on. That was enough to set off a much higher inflation rate going into 2004. But January was the nail in the patient's coffin. That's the month the wizards applied too much heroin. The BOJ printed up enough yen to buy $67 billion in US debt in just one month. And then you have Bernanke and Greenspan doing their moral hazard road show about the same time, and bingo the genie is really out of the bottle. Moral hazard road shows kick off the crack-up boom phase of the inflation, and make it even deadlier. So here we have Bernanke doing it again, amazing. And so as we finish off February's "activities" , it appears we have more of the same. And March? Who knows when they will wake up, but regardless the inflation is screaming. Not reporting it (as in the PPI delay) will not hide the obvious either. I think the most disturbing aspect of this though is the failure of our major financial institutions and other observers to call foul and start throwing penalty flags.