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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (5272)	4/29/2004 5:22:42 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Heinz sticks to his guns on deflation well, the IMF's warning about 'fiscal sustainability' has already been aired. however, there's a bit of confusion here regarding inflation, imo. i think the bond market is merely in a correction, and will head higher again. a falling dollar does NOT per se reliably guarantee inflation. and the demographics picture really is an argument for DEflation rather than inflation, because when the population cohort that is aging grows larger, priorities will shift from spending to saving. this is indeed what has happened in Japan - INCOME and paying down debt have become so important, that deflation of consumer prices has followed. the fact that Japan's government debt as a percentage of GDP is almost 3 TIMES larger than that of the US has not stopped deflation from taking hold. neither has a bear market in the Yen from 1995 to 1998, which actually almost HALVED its external value been able to stop deflation of the CPI. also, one must not mistake a rally in commodities prices for 'inflation' , or even a sign that inflation is likely to accelerate. the effect is not entirely absent, but it very likely temporary. more important than commodity prices (which really account only for a small percentage of factor inputs) are the truly VAST industrial overcapacities for manufactured goods all over the world, as well as the massive amount of excess labor - both will continue to depress prices of finished goods. also, the huge private sector debt mountain WILL be resolved, but neither creditors , and least of all DEBTORS will get what they WANT, but rather what they deserve, as Bonner has put it. inflation would 'save' them - deflation will destroy them. guess what, i don't think the market gods are in a friendly, 'saving' mood. :)