I recently wrote in an article (The S&P500 and the Emperor that Wears No Clothes) that the U.S. faces two likely economic paths due to Fed policy and the country's fiscal debt overhang. One, Fed policy of holding rates at zero and below the level of current inflation will debase the dollar and prove inflationary even as economic activity remains low. Inflation would actually not be such a bad outcome for equities and near equity investments like junk bonds. The second likely outcome is that economic growth remains weak and rates continue to remain low, which will result in a Japanese style deflation scenario. In this "Zombie Market" scenario, equities will correct and default issues will become a...
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