jbog,
There's clearly a bit of a war among nations to keep their currencies low, the United States included. But I do agree with Rosenberg that household balance sheet repair is crucial. As Rosenberg implies, if you can't do anything about the numerator, then maybe you can do something about the denominator. That means you have to inflate asset value.
If your comments about cotton, sugar and beef are meant to imply that you think we're facing an inflationary environment any time soon, then I think you're way, way off base. Bernanke used the term "deflation" three times in his most recent remarks on monetary policy.
And this today from the Chicago Fed Governor:
Federal Reserve Bank of Chicago President Charles Evans said the U.S. is in a “bona fide liquidity trap” and needs “much more” monetary accommodation in the face of high unemployment and inflation that’s too low.
“If you reach the conclusion that we are in a liquidity trap, or even near a perilous liquidity trap, more accommodation is not data-dependent or a close call,” the regional bank chief said in a speech in Boston today. He advocated targeting a path for the price level as a way to stop the inflation rate from falling.
And, as David Rosenberg points out:
No doubt the spike in commodity costs and weakness in the U.S. dollar is showing up in the core pipeline measures like the PPI crude excluding food and energy segment, which popped 5.5% MoM in September and is now running at a +37% annual rate over the past three months. However, there has thus far been little in the way of any passthrough to speak of — the core intermediate stage PPI was up only 2% and over the past three months this metric has actually deflated modestly, at a 0.7% annual rate.
Furthermore,
The headline rate of inflation, despite everything that has been thrown at it in terms of unprecedented monetary, fiscal and bailout stimulus, sits at 1.1% today. The core rate, proven to be the key driver for bond yields, which is why it is a focal point, is now running at a mere 0.8% year-over-year rate, the lowest since March 1961 when Ben Bernanke was in grade school.
And finally,
For all the talk of how higher Chinese wages were going to be transmitted to higher prices of these imported items, it does not seem to be happening. Either that, or margins for several retailers are in the process of being crushed. The latest National Federation of Independent Business Sentiment Survey showed that company-pricing plans are virtually nonexistent. Therefore, it would make sense to assume that once we get pass this bump in the form of a weaker U.S. dollar and surging commodity prices, the risks of deflation will intensify again.
Unless the bond market has gone totally insane--and bond traders are not insane--inflation is not a risk now or in the foreseeable future.
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