Asbytec

Will Deflationary Forces Overwhelm Global Fiscal Stimulus?

The Fed and treasury have "spent the money" and still no inflation.
Oil is having a hard time staying above $70. Gold? Well, hard to say how much of the valuation is speculation and flight to safety not tied to the dollar. Gold should fall as the dollar strengthens in deflation, though, all other forces being equal. They are not equal with all the volatility in currencies and the markets (threat of double dip.)

I understand the problem to be the fed's limited ability to affect global liquidity. The Fed only controls (guessing) around 10% (8% a year ago, haven't seen figures since.) It's the falling liquidity. I argue the de-leveraging (credit destruction, as mentioned above) that is the source of global deflation and the Fed just cannot keep up. Indeed, the world's central banks cannot...or will not. I argue inducing inflation is not the easy part, it's actually proving quite hard to do. All money is contracting: dollars, euros, yen...and velocity is way down.

Wanna see inflation? Get the banks lending, again. Let loose the derivative market. Balance trade. Oh, yea, baby...coupled with the unprecedented easing, that's inflationary. Lending and borrowing are down, the derivative market will be regulated, and China said, "no."

The government will not default, to do so would be political suicide ending with the destruction of American dominance (which could end for other reasons, so...) We've had heavy debt before and paid it down. I see no reason why it can't be done, again.

I agree with one poster above, we're in this for a long haul...with significant scarring. A market rally does not a V shaped recovery make.