Why Fed Policies and Treasury Department Bailouts Will Lead to Inflation Rather Than Deflation
Contrarian Profits (December 3rd, 2008) Writes:
The U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) both fell in October. Those declines – combined with sharp downward spirals in worldwide stock and commodity prices – have caused many analysts, and even central bankers, to worry that we are on the brink of deflation.
Such concerns may be warranted in the short-term. But in the long run, deflation won’t be the challenge we face.
Thanks to an overly aggressive central bank, and more than $1.5 trillion in U.S. Treasury Department bailout programs – as well as other factors related to the ongoing global financial crisis – inflation will be the problem that ultimately bedevils us.
As long as oil and commodity prices drop, the PPI and CPI indices, which include oil and commodity prices, also will fall. Such a decline, however, does not constitute deflation; it is simply a one-time price adjustment. This is particularly true if most
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Regardless of any formal announcement of whether or not the United States drops into an actual recession, the ongoing credit crisis guarantees a contraction of the American economy by virtually every measure we know. That period of darkness will be marked by a dramatic slowdown in economic activity, as well as by rising unemployment, additional declines in U.S. stock prices, and constant volatility. It could last as long as 12-18 months.
But when the dawn does come, it will be one to remember. If U.S. President-elect Barack Obama gets it right – and I have every reason to believe that he will – then investors will be presented with the greatest investment ... 