Declining housing values are deflationary. Paying-down debt obligations are also deflationary. However, if the Fed is going to exercise "money-pump on steroids to counter the effects of deflationary forces", we'll get high/hyper inflation instead. Therefore... as "inflating like a mofo" will postpone the day of reckoning, and as no incumbent politician wants to run for reelection during a time of financial contraction.... I say we get "inflation in the extreme... currency debasement to the point of bankrupting nearly ALL US citizens... followed by deflationary collapse". Unfortunately, when the "US recovers", it won't be the citizens who got wiped out who benefit... but rather the foreigners whose currency was NOT destroyed who get to buy up US assets on the cheap. In other words... the US will be owned by foreigners, and we US citizens will be waiting their tables and doing their laundry.... all thanks to a LYING, THIEVING, CRIMINALLY NEGLIGANT US Gummint and Federal Reserve. (But, don't get me started...) FWIW... I'm not just some old crackpot with $Millions, sitting in his trading room, wearing tennis togs, surrounded by 4 dogs and drinking a 1554.... this scenario is nothing more than "just another example of World Financial History where the gummint regards the people as fodder to support the government because citizens are more concerned about their personal 'gummint cheese' than holding self-serving politicans accountable". THERE ARE HUNDREDS OF EXAMPLES OF THIS VERY SAME THING... ALL HAVE ENDED THE SAME! WAKE UP AMERICA... THROW THE BUMS OUT!!
Inflation. If there is even a hint of deflation, the FED has already shown they could care less about the $, and will pump an endless quantity of dollars into the economy. We certainly have housing deflation, but I don't see this dropping below levels of when the bubble exploded, or the historic mortgage/income ratios (roughly 3 to 1). People will buy again at this point. We have inflation every where else due to excess liquidity (NOT China). The only exception I can see where deflation could kick in is if we go into a depression like down turn where people just can't buy anything period, and it has to be global. I don't see a paralell to Japan type deflation because their monetary policies don't affect the rest of the World like the US does (ie, excess dollars equals global commodity inflation, excess yen does not).
It seems like the FED really wants to avoid what happened in Japan. Is this Ben's thesis for money pumping... And it sounds like other countries will join in the currency debasement. So what will outperform: gold or the euro? In my opinion its gold but their are many out there who believe it will be the euro.
No. I believe it is just an "avoid recession at all costs in an election year". The FED is not supposed to be a tool of politicians or Wall St, but it appears to be now. Pathetic thing is the FED's mandate is price stability! That certainly went out the window.
If it comes to that, you should be happy that foreigners will put a price floor on US asset. If you don't have that, guess what, welcome IMF, we will be borrowing in Yen, Yuan and Euro. 1st step to really default as a nation.
It's worse than that. MUCH WORSE... more like "no recession EVER again if the Fed can help it".... In other words, the Fed and Gummint would rather "postpone the inevitable and bankrupt every US citizen in the process with a blizzard of money-print inflation and currency destruction" before accommodating a recession.. during which incumbent politicians would face a difficult re-election. It's all about "Gummint at the EXPENSE of the people... and if you don't like it, TOUGH SHIT!"
BOTH. The inflation we are having now is in a death spiral and should continue for a tad bit longer before the consumer literally buckles. Deflation will quickly follow, and the fed will be powerless to halt it.
Deflation: Watch the supply of money <img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=1828579">