Invisible Hand

'Bailouts' Are Misunderstood

Deflation is the current concern not inflation. GDP is falling, unemployment rising, and CPI is falling; this creates deflation not inflation. The combination of the Fed funds rate at virtually zero and CPI falling is another tell tale sign of deflation. I'm not as concerned that we will mimic Japan's deflationary economy because they had and still do have a current account surplus--nation of savers. In contrast we are a current account deficity country, and thus, have no problem with encouraging people to spend as witnessed by our low marginal propensity to save--nation of spenders.

Inflation is a major concern going forward because the Fed always overshoots on the easy money side. Most likely they will start reigning in money supply too late, and this will cause the type of inflation we saw during the late 70's early 80's. I would start dollar cost averaging into tips and gold. You may want to hedge this position with U.S. treasuries. If you have an appetite for risk start building positions in oil and steel in the middle of the year. I figure the fiscal stimuli from around the world should show up in future GDP expectations by then. Moreover, all the pumping of money should start stimulating the world economy.