levin70

Own Gold? Time to Fold

The reason we see no inflation currently is that the velocity of money has dropped to near zero. It isn't because the FED hasn't started engaging in quantitative easing, because it has. The real question is how well the FED pulls back on the spigot once the thrawing happens in the credit market such that velocity re-starts.

You really can't apply the Japan analogy here because unlike the US, Japan never had mark-to-market. The Japanese banking system was like the guy in Animal House (Kevin Bacon) at the parade shouting "all is well" while the on-rushing crowd stampeded over him. So for a decade the velocity of money in Japan remained near zero as the banks couldn't lend because they knew they were insolvent but were afraid to admit it and the Gov't looked the other way. It took 10 years for the Gov't to restart the banking sector through capital injections.

So the 64 trillion dollar question is that when the thaw occurs (it will) will the FED respond by repaitriating the funds (the happy ending) or will it be slow to do so? If you bet on the slow to do so, then you are betting that sometime in the future inflation will grow significantly.

Kind Regards