Inflation/Deflation
I like our weekend debates here and will add my 2 cents.
Deflation - If the interest rates are lowered, and "liquidity" is dramatically increased, WITHOUT raising prices, the result is deflation. Once the terrible inflation cycle of the late '70's was broken, interest rates gradually went down, liquidity and stock markets went up, commodity prices went down and inventories of commodities piled up. Very little investment was made in commodity infrastructure.
Inflation - Liquidity gets pumped up while interest rates are held low, WITH rising prices. As the prices go up, interest rates are eventually increased, liquidity contracts. Pain is the result for the prior deflation and inventories are worked off.
What makes this period so different than the past is the developing economies of B.R.I.C. They may take up the slack in commodities and our recession will not be one of excess inventories, rather this time it will be financial recession. A liquidity contraction due to the mistakes made by really greedy "smart" guys polluting the debt instruments with toxic waste. Instead of the liquidity the FED is going to pump into the system going to productive investments, it is going to bail out the greedy bankers and hedge funds. We are going to see a blizzard of US dollars thrown at the debt and banking markets.
I see big time deflation in housing prices in the US and Europe, at the same time they increase in B.R.I.C. Energy/grains/metals will continue to be consumed by the developing world, AND the U.S. due to this being a financial recession. Inventories of most commodities are nearer all time LOWS than highs. Our employment #'s will stay strong mostly due to our population demographic, there will be plenty of us working on main street while the lay offs are on Wall Street and in the Banks.
Gold is a slave to no government. It is used as a hedge against inflation and a store of value during times like we are in now. I think the price will hold up while we go through some rough sledding in the financial markets. All of the printing presses around the world are running 24/7.
I have invested heavily in energy/grains/metals/gold and silver. It just feels way better holding the things the world needs vs. paper.
I wish everyone here well, no matter what your opinion. Please share your opinions!
GOOD LUCK!
Kipp
