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Thursday, July 16, 2009

Is inflation back?

Two charts tell the story:




-- from "Inflation’s Back Already, Sell This Sector, The Next Bubble, A Worthy “Green Shoot” and More!" by Addison Wiggin and Ian Mathias
“The market clearly is not worried about inflation right now,” says Chris Mayer. “That is the only way to explain 10-year Treasury yields of 3.5%. The deflationist view is the one that prevails. This view, which makes some compelling and elegant arguments, maintains that the credit losses far surpass the monetary and fiscal stimulus. All those trillions in destroyed debt, plus the yanking of credit from consumers and businesses, overwhelm new money creation.

“So, this reasoning goes, the greater risk is that asset prices continue to fall. This is the classic debt-deflation point of view. The theory seems to fit the facts of what we are seeing in the marketplace right now.

“I don’t dismiss these arguments easily -- and there is more to it than what I’ve given you here. I’ve spent some time going over the arguments of some of deflation’s most persuasive and sophisticated advocates: money manager Van Hoisington, economist David Rosenberg and others.

“Still, I think the endgame is for inflation -- which is when paper currencies buy less. Given the choice of holding U.S. dollars or real assets (such as gold or iron ore or land), I’ll take real assets.”
-- from "Inflation’s Back Already, Sell This Sector, The Next Bubble, A Worthy “Green Shoot” and More!" by Addison Wiggin and Ian Mathias

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