wut-dew-eye-know...but I think inflation is the elephant in the room, pounding on the piano, singing a medly of show tunes, flatulating, hogging the hors d'eurves, hitting on your date, telling dumb stories about himself and wearing a loud plaid jacket and wide paisley tie. and everyone acts like they're not sure but is there something funny going on here?
I agree with an earlier post that deflationary pressures have eased a great deal in the last few years. However, I believe that they can and probably will re-emerge very easily. This latest expansion is too dependent upon homebuilding driven by minimum equity lending AND defense spending which creates essentially no equity. An economy this leveraged can flip from one extreme to the other very easily. Incessant monetary tightening that does not pause to see what its effects are could be dangerous in this regard. If this card house starts to unravel precipitously it will not be so easy to stop. The Fed should especially be concerned with its own concerns regarding Fannie and Freddie and the "creative" 100% interest only and negative amortization loans that have been utilized so freely to fuel this cycle. The Irrational Exhuberance among FOMC members has them fighting the last war with a Maginot Line of measured increases. The danger is that the Fed creates it's own doomsday scenario. The sensitivity of these loans, and this homebuilding economy revolve entirely around HIGHER INTEREST SHORT TERM RATES. If they "accidentally" raise rates higher than is neccessary because of their impatience or egotistical need to prove their manhood......