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This is the deflation argument.
(See below)

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.

From HFE:

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


3 Responses

  1. Well, I sure hope so – I just bought a house (from the bank that foreclosed on it). It sure would be easier to pay off that 250,000 fixed rate mortgage if I’m making $2,000,000 a year…

  2. so who do you vote for with both candidates wanting a balanced budget?

    the weakest and less competent who’s less likely to succeed?

  3. Well neither candidate is likely to actually balance the budget. After all it seems as soon as federal spending declines even a little, GDP growth falters. They may try to balance the budget, but the slowing economy that results will force their hand, just like they were forced to implement the “stimulus” earlier this year.

    Besides which domestic policy is really a function of both the president and Congress. Instead makes sense to compare foreign policy, which will be set entirely by the next president and will be radically different given our two choices.

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