Tuesday, September 9, 2008

The Debts of the World: Deflation Part II

Some of you asked for examples of deflation.

Well, here they are:

1) Deflation in housing (lower prices),
2) deflation in credit (stricter lending standards),
3) deflation in commodities (oil, gold, and corn were the most egregious offenders),
4) and now deflation in equities (DOW and S+P ran up to ridiculous levels).

Yes, the money supply is increasing, including M3.

This is going to lead to inflation...but we won't fully feel its effects for a while. Normally, gold should shoot up like a rocket.

However, the gold bugs forget one little detail - the unique position of the USA as the world's biggest economic engine.

Foreigners HAVE to keep buying dollars - either directly on the fx markets or through Treasuries and/or agency debt. They NEED our consumers fat and happy to run their factories and prime the oil pumps. They NEED to keep their currencies competitive for their exporters to be strong.

We WILL fully feel inflation's effect...in time; perhaps as early as late November. Until then, the Fed/Treasury is re-loading for another round of bailouts.