Inflation fears are now sufficient that investors are prepared to take a less-than-zero yield on government bonds, calculating that the inflation bonus will be more profitable than the next-to-nothing yields everything else is paying in our present loosey-goosey cheap-money environment.
Inflation fears are now sufficient that investors are prepared to take a less-than-zero yield on government bonds, calculating …
There are a few things off with this analysis. There are many commentators who have been alarmed by the huge amounts allocated by governments as so-called “stimulus spending” and have suggested that inflation is on its way. This writer appears to be one more. He may eventually be correct, but the current issues are different that he assumes.
I have seen estimates that as much as $6 trillion has been destroyed in the real estate crash over the last two to three years. Compared to the size of the (very foolish) government stimulus programs, this amount of capital destruction argues that deflation is what is coming rather than inflation. Had the author understood a deflationary environment, he would have also chosen that word instead of inflation as the first word in the first sentence I quoted. The sentence simply does not make sense with the word inflation there.
Inflationary fears are only an issue if government decides that more so-called stimulus spending is required.
Fiscal stimulus is not working and monetary-policy stimulus is not working, because the problem is not lack of consumer appetite. The problem is a broken banking system, a trillion dollars or more in dead or devalued capital, and a national commitment to sustaining the ragged remains of the real-estate bubble that helped to cause this mess.
This is very unfortunate analysis from a so-called conservative source. One would think that conservatives would not make the same errors that leftists make.
In fact, things are working as they should. Market forces are extremely strong. It is market forces which are liquidating the bad debt from the economy and forcing a return from decades of inflation to a sound system. Will governments permit markets to function? Probably not. Therefore, we can expect more stimulus to offset the deflation caused by market forces.
Hah wait until they find out CPI is rigged and doesn’t include anything you actually buy. Uncle Ben said inflation was too low right now. Too bad he doesn’t eat his own rice.