If as you say we have a “deflationary challenge”, why do you think there will be inflation? That’s a contradiction.

I continue to believe inflation will be as tame as a sleeping panda bear. The 10-yr yield won’t breach 5% in 2010, and you can take that to the bank. Feel free to take the other side and put a wager on it!

Best, Sam

Gee, Sam, that is just what younger and less experienced loan officers said about five years ago when I warned that the economy would not keep going up, up, up! (I train lenders on credit analysis for business loans.) They said it was a new economic paradigm based on information, not manufacturing or agriculture.

The experienced lenders in the room (and I) just shook our heads. Turns out we were right.

On what do you base your assertion that inflation will only rise to 5-6%? And how does our efficiency of cycles deal with the deflationary challenge we just experienced (or perhaps are still experiencing)?

As to the damage this does, a loaf of bread is $2 and a person who retired 15-20 years ago (my parents) with a fixed income has to eat. It was $.25 or so then. Gas at $4 is a much different proposition than gas at $1. You come across as a bit heartless when you imply that everyone can spend more because everyone is making more. Or blithely say thank goodness ‘grandma’ lives in the country because it costs less than the big city.

Inflation hurts. And it steals from everyone. Savings and fixed retirement income loses purchasing power. That purchasing power belonged to someone…and now it doesn’t.

Funny you say that the period of high inflation was from 2001-2007. That was the period when the Fed Funds went to pretty much 0%, and the 10-yr treasury yield bottomed at around 3%. If there was inflation, rates would be high.

So that’s the thing, if I do believe there will be inflation with all this monetary expansion, I’d load up on debt. Alas, I think inflation will cont to be benign, as it has been for the past 30 years.

Sam

I’m an US Citizen who moved overseas to work in 2006, I still reference things to US dollars so when the USD goes down things do feel more expensive for me! I should add that currently I’m paid in a local country salary based on a fixed exchange rate to the US Dollar so when the dollar goes down my salary does go up slightly.

The US is a net importer so when the value of the USD comes down then imports go up- many manufactured items are imported into the US so that will be effected.

The big impact would be if the dollar dropped dramatically, as many items are priced in USD. I work making computer hardware and all our product prices are priced in USD so if the dollar gets very weak it’s a problem for us as we pay salaries (for my workers) in local currency.

I would prefer a strong and stable dollar.

But I’m not a typical American- I can speak some Thai, Spanish and can understand one of the regional Indian languages.

As for countries getting into massive debt (like the USA now) look to your mother country of Japan- they have been stuffing themselves with debt for 20 years since the peak of 1989 and the market is still significantly lower than the peak. There has been pervasive deflation and multiple recessions in Japan and even today they are announcing a war on deflation . So there may well not be high inflation in the US. In fact the period of high inflation in the US was from 2001 – 2007 as home prices and commodities and food spiked up. Be careful loading up on debt right now!

-Mike

I hear there will be a heavy rebuttal on this post from another popular website. I can’t wait! FS