posted on May, 10 2009 @ 04:25 PM
Here's one way to look at it. I'm not saying this is absolutely how its going to play out, but it seems possible.
First of all, we seem to currently have more deflation than inflation, especially with regards to assets. Stocks, bonds, real-estate...all have
plunged in price. Prices on the shelves of stores haven't fallen as dramatically, but there have been price cuts. Most people have seen their net
worths halved or worse with the withering of the stock market. Even oil (although currently rising) is more than 50% off peak from last year.
Big-ticket consumer items, from cars to white goods like washing machines, are down in price. You can probably point to a few things that have
increased in price, but it seems to me that far more things have fallen in value.
Now, as we know, the Fed has been creating money and credit at a furious pace to counter this, dumping trillions into the economy. The government
itself is not much better, going into spending overdrive as well as gushing hundreds of billions in bailout cash. At some point the effect of all this
credit/currency creation is going to hit the real market. When it does, we will start to see inflation, as the US dollar becomes increasingly
As we lurch from a deflationary to an inflationary economy, we will by necessity pass a kind of "sweet spot" where it seems everything is fine
again. Prices of assets will go up to the point where they seem to reflect a recovery...before overshooting the mark. You can bet the corporate shills
in the media will make the most of our brief pass through such a "sweet spot," and you will hear plenty about how stocks, housing, etc. are finally
recovering. The "recovery" will be startlingly brief, however...maybe only a few months long...because it will be based on the creation of excess
paper wealth rather than any real value.
This seems plausible to me...thoughts?