Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Debt Crisis to Trigger Euro-zone Credit Freeze, Expiry of Greek Euro Bank Notes - 7th July 15
SPX Sinking Premarket - 7th July 15
Marc Faber Warns: “Wake Up, People Of The World! Greece Will Come To You …Very Soon” - 7th July 15
The Greek Vote and the EU Miscalculation - 7th July 15
SPX Stocks Index Still on a Sell Signal - 7th July 15
Bill Gross on Greece: 'We're in the Eye of the Hurricane' - 7th July 15
Dow Stocks Bear Market Underway - 6th July 15
Marc Faber Warns of Greece Crisis Contagion Very High Risk - 6th July 15
Greece to Print Counterfeit Euros or IOUs, Hyper-Inflation Beckons - 6th July 15
Stock Market, Investing Big Picture - 6th July 15
“Oxi!” - Greeks Defy EU As Varoufakis Resigns To Ease Tensions With “Partners” - 6th July 15
Stock Market Rally in a Downtrend? - 6th July 15
Silver Price Consolidating Ahead of Another Sharp Drop - 6th July 15
Gold Price Gravitating Lower Towards $1000 - 6th July 15
Syriza Convinces Greece to Commit Suicide, GrExit Beckons, Market Reaction - 6th July 15
Financial and Commodity Markets Become Scary: Crash Point Or Turning Point - 5th July 15
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World - 5th July 15
Forget 'Haircut', Instead Syriza Plans Beheading of Greek Bank Depositors, Theft of Deposits - 5th July 15
The Pentagon’s 2015 Strategy For Ruling the World Through Endless War - 5th July 15
United States Celebrates the Disastrous Secession From Great Britain - 5th July 15
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

From Deflation to Inflation

Economics / Inflation Sep 21, 2009 - 10:21 AM GMT

By: Martin_D_Weiss

Economics

Best Financial Markets Analysis ArticleStep by step, with little fanfare and great complacency, we are witnessing a fundamental, global shift that’s rapidly transforming the investment scene:

The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.


They are everywhere. They could be overwhelming. They must NOT be ignored …

Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits

As Larry Edelson explained here one week ago:

  • Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
  • The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
  • Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
  • The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
  • Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.

Total burden per household: More than $1 million!

This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).

It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.

Inflationary Force #2 New Lows in the U.S. Dollar

Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.

It’s just five points away from its lowest level in history.

And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:

For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.

This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.

It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.

Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.

End result: More momentum to the dollar’s decline.

Inflationary Force #3 U.S. Household Wealth Now Expanding Again

For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.

Now, however, in the second quarter of 2009, that trend has reversed.

According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of

  • $1.1 trillion common and preferred stocks
  • $494 billion in mutual funds
  • $157 billion in real estate

These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.

Inflationary Force #4 Exploding U.S. Money Supply

Money pouring into the economy and chasing scarce goods is the classic cause of inflation.

But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).

During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.

U.S. Money Supply Levels

Now, however, as you can see in this chart provided by www.Shadowstats.com, the outlook has changed dramatically:

Since mid-2008, money supply has exploded beyond $1.65 trillion, with more rapid growth on the way.

Is Deflation Dead?

No. It will return.

But at this juncture, inflation is the primary concern, with far-reaching consequences on how you invest, when and where.

In the days ahead, my team and I will give you step-by-step instructions on how to protect yourself — and profit.

But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:

First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.

Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.

Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.

Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.

Stand by for more details in upcoming emails from key members of our team, including myself, Larry Edelson and Mike Larson.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .
Money and Markets Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History