spqrusa

The Economic Trifecta: Inflation, Devaluation, High Interest

On May 31 04:28 AM spqrusa wrote:

> Ok - put away the crystal ball and let us all get back to earth.
> Even with all the added zeros on Fed balance sheets, inflation would
> only occur if those added zeros pursue commodities. With the declines
> in manufacturing, increased savings, the general retrenchment of
> consumers, and moderated demand in emerging economies, we don't see
> significant long-term movement on raw materials.

You seem to put a lot of stock in the American consumer. With household debt at 100% of GDP, he is not coming back for a long time. The 2.5 billion people in China and India, though, WILL consume, though. Those nations' middle classes are tiny compared with ours, but their combined populations are more than 8 times our own. Even if a small percentage of their populations are middle class, that will be a significant consumer base. These Chinese and Indian consumers, then, will certainly be purchasing cars, consumer products, and energy.

Carlos - I don't put any "stock in the American consumer". You must have confused my post with someone else's post. I think there is a general retrenchment of consumers in America, i.e. they are wary of returning to go-go spending attitudes.

I very much agree that the emerging economies consumer's will power the distant future. But you have to remember that GDP/head and Spending/head in the emerging economies still has a long way to go before they create a comparable "middle class" - maybe 20-30 years before they reach parity with USA/EU regions assuming the same relative growth/wealth rates.

The Economic Trifecta: Inflation, Devaluation, High Interest

Ok - put away the crystal ball and let us all get back to earth. Even with all the added zeros on Fed balance sheets, inflation would only occur if those added zeros pursue commodities. With the declines in manufacturing, increased savings, the general retrenchment of consumers, and moderated demand in emerging economies, we don't see significant long-term movement on raw materials. Speculation in commodities may spook people to hedge against inflation, but that would be a mistake.

The major factor keeping the USA in the game is the perceived value of the dollar and US based assets. People want to live here. People still feel secure in the US compared any other open economy. Sure, people could start to lust for land and life in Sweden or Finland where economies are more resistant to global gyrations, but there are too many barriers in these other "safe" economies. The spark is still here in the US. The Chinese figured this out with their unique form of state capitalism, and as long as we don't repeat the bad habits of prior anti-capitalist movements, we will continue to lead the world in wealth creation.