It’s official. The FOMC has a sign over their door that says “Deflation in not an Option.” Yet, the bullets in their chamber are low…ZIRP is already at zero and will remain there for the foreseeable future. So can Bernanke really stoke the market as he leans hard on the zero interest rate policy—indefinitely—as he continues to toy with the market as though it’s a puppet? Goldman Sachs believes QE2 is already priced into the market and that the FOMC could re-purchase $1 Trillion worth of securities. And if they don’t?
Actually, it’s all a mute point because the FOMC has to stimulate anyway. They’re already knee deep and there’s simply no turning back now…..deflation simply can’t be an option in their Keynesian world, especially with a Federal balance sheet overleveraged. So they will continue to keep the pedal to the metal as we head toward the hyperinflationary wall of scary. Yes sir, deflation=less tax revenue, inflation equals more. My take, hyperinflation is coming to a theatre near you and the massive deflationary chatter is the ultimate contrarian indicator as the only real thing Bernanke is sure to stoke is inflation. Yes, I do know the deflationary data.
And there are deflationary pockets everywhere, but so too, are some huge inflationary pockets….food, oil, medical, education, etc….so with the Fed committed to stimulating the economy on a would be bankrupt balance sheet were it treated like a corporation because they need tax revenues, jobs, and votes hyperinflation is all but guaranteed once deflation is clearly out of its way.
To bolster the eventual hyperinflation argument, the Treasury markets, used for U.S. deficit spending, has to contend with China and Saudi Arabia starting to diversify away from the dollar, as they are buying gold and other foreign currencies, and Japan no longer has the ability to purchase any meaningful amounts of the greenbacks. Is the tipping point and our addiction to low interest rates coming to a head? Will the U.S. Treasury run the printing presses overtime and debase the dollar? Foreigners think so as does Naseem Talib and Warren Buffett. Importantly, if China and Saudi Arabia are stocking up on gold should precious metals be considered for diversification once the deflationary trade comes to an end? And if the dollar continues to erode substantially over time, will we be looking for jobs in China America?
