carey_jim

Fears of Inflation Seem Overblown

Maybe Rosie is being too Rosie.

The last time I looked, Merrill Lynch was near extinction and one of the reasons was that they didn't know anything about responsible banking practices.

The only thing their brokers knew for certain was how to separate their clients from their money by transferring it to their own pockets.

U.S. Treasuries could tank for a number of reasons. Why be stupid and ignore them?

What's Wrong with the CPI

It seems clear that the government is doing everything it can to avoid deflation and one of their methods is to prevent the perception of (real housing) deflation.

Keeping the price of gasoline (energy) up when the price of oil is falling (although there are other forces at work also, such as the price of various grades of crude) is another.

It looks like the world economy is tilting in the direction of deflation and world governments are tilting at windmills as usual (or fiddling while Rome burns, if you prefer.)

When (and if) the deflation parade gets so big and noisy that it is undeniable, economists and politicians will position themselves in front of it and proclaim themselves Leaders of the Parade.

Until then, expect more blowing of hot air and helium into sinking economic balloons.

Bonds: No Inflation Threat in Sight

Sorry, I meant 165 yen.

At this point it looks as if the US government wants both the yen and renminbi stronger and not weaker, however.

Bureaucratic minds are not easy to fathom.

Bonds: No Inflation Threat in Sight

The chart actually shows a similar lag between interest rates and inflation for the two previous periods also.

The Iraq war and Vietnam war are also both causes of inflation as all wars are (Revolutionary War, Civil War, World War I and II) Guns or butter?

As has been pointed out, in another comment, it is in the interest of the world to purchase US treasury debt to keep the United States solvent and to prevent the collapse of the dollar which might lead to world economic chaos.

The "flight to safety" into US Treasury issues is a historical reflex action which has less rational basis today than it has had in the recent past.

All of these factors point to a possible quick and severe correction of interest rates sometime in the future when the roadrunner realizes that he has, in fact, fallen off the cliff.

Is it rational to expect countries to loan money in inflationary environments when the currency they are purchasing is also losing value? Or is it state planning (socialism)?

Is it rational for United States citizens to purchase that same debt for rates that are below the official rate of inflation and which are FAR below the actual rate of inflation, hedonic factors aside of course, like the quality of television entertainment, hip hop and the movies?

The United States is not strong enough to try to set the dollar at .8 euros and 65 yen, for example, in another Breton Woods type declaration,, or even to "talk it up" over a two or three year period which they would like to be able to do.

That would be socialism anyway and we know socialism doesn't work. Or do we?