This is the deflation argument.
Never seen a split quite like this with calls for both accelerating inflation and outright deflation.
Which will it be?
My guess is inflation for the US as our friendly external monopolist continues to squeeze us with ever higher crude prices.
The political process is ensuring they will be passed through as sufficient government ‘check writing’ (net government spending) is sustained to support real growth.
(Bear Stearns, housing agencies, fiscal rebates, fiscal housing package, etc.)
And the dollar continues to adjust to the sudden, politically induced shift in foreign desires to accumulate USD financial and domestic assets.
Various private Q2 GDP estimates are now up to 2% – more than sufficient to support demand and pass through the higher headline prices.
Government is never revenue constrained regarding spending and/or lending.
The limit to government check writing is the political tolerance for inflation, which grows with economic weakness.
This inflation looks to me to be far worse than the 1970s.
Back then, we were able to muster a 15 million bpd positive supply response in crude that broke OPEC by deregulating natural gas.
We don’t have that card to play this time around.
July 14, 2008
- Global Disinflation Is Going To Be The Next Big Move For The Bond Markets – Weinberg
- Commodity And Oil Prices Cannot Rise Forever… There Is No Inflation – Weinberg
- Bonds To Benefit – Weinberg
- STOP PRESS: Treasury, Fed To Make Credit Available To GSEs; Treasury To Seek Authority To Buy Their Stocks – Shepherdson
- This Is A Lifeboat, Not a Bailout; Aim Is To Prevent Uncontained Failure – Shepherdson
- We Cannot Rule Out A Rate Cut Tomorrow – Weinberg
- Core CPI Shows No Medium-Term Inflation Risks – Weinberg
- Production Data Will Be Really Soft – Weinberg
- Core CPI Still Under 2% And Steady, ZEW At New Record Low – Weinberg
- … Tighter Money Is Unhelpful Here – Weinberg
- Starting Point For August QIR Forecasts To Emerge In This Week’s
- Reports: Most Inputs To The Forecasts Will Be Stronger – Weinberg
- Not-Too-Scary Inflation Report Exported: Core Prices Are Steady – Weinberg
- Three Soft Report This Week Will Keep Investors Moving Out Of Stocks, Into Bonds – Weinberg
- CPI Report For Q2, Due Next Week, May Rekindle Inflation Worries – Weinberg
- Exploding Foreign Borrowing Diminishes Foreign Currency Reserve Adequacy; Trends Suggest Further Decay – Weinberg
- GDP Will Be Below Recent Trend In This Week’s Report – Weinberg