I've been saying this for some time. We are about to enter a highly deflationary period, and the emergence of BRIC or the much lauded, alleged phenomenon of a decoupled global economy won't alter this fact. If the U.S. slows, demand for all commodities will slow.
this will only happen if the Fed goes the ET's way. a 5.25% fed funds with the ten year at 3.63 and mortgage rates 5.42% would starve the banks. what they need to do is to keep slashing short-term rates to subsidize the banking system
The Fed/Treasury are backed into the corner now... We have had as much inflation via debt as we will get and weimar inflation is not in the cards. The Fed doesn't set interest rates, they defend a target rate. Keep an eye on the EFF if you want to know where the FFT is going. Right now it is saying NO cut. "He who panics first panics best."
Seventies style stagflation is a more likely scenario. The monetary system that we have in place is greared towards the dilution of currencies, not their increase of value as would be the cause of deflation. Economies can stagnate as speculation drives up demand for commodities. In the 1970's there was a major bull market in commodities as the US economy was stagnating and one of the largest producers in the world, England, was virtually bankrupt. The rise in commodities during that decade was due completely to the dilution of currencies and the increase in speculative demand.
Stagflation is transitory and is what we have had the past 5-6 years. What do the treasuries have to say about deflation/inflation?
Nixe on stagflation. It's a tempting thought, but think about cheap the biggest input price of all - human labor - is. We didn't have massive factories in Mexico, China, Thailand, along with call centers in India back in the 70s. That has made the global economy more dependent, not less so, on the one consumer who spends all of their income, and then some - the American.