Mish recently recently wrote a post titled "Time for a Dollar Bounce." You can read the article here...
http://globaleconomicanalysis.blogspot.com/2010/07/time-for-dollar-bounce.html
It is well written. I have followed his posts. When it comes to money and credit he is spot on. I have a great deal of respect for his thoughts on economics. But, I really think he is missing the big picture when it comes to Inflation vs. Deflation. Are we currently in deflation? Well, it all depends on how you look at it. I don't want to get into technicalities on the issue. What I do wish to point out is that all signs point to inflation--not deflation. Maybe he understands this--I do not know. His focus is short term--I think. Maybe he should take a longer look into the future. Here is what it says...
1. Social Security... in it's current existence it is unsustainable.
2. Medicare... in it's current existence it is unsustainable.
3. Never ending wars... and the threat of a war with Iran.
4. Several States with huge deficits... do you really think the Federal Government will allow them to default?
5. A huge Federal Deficit... do you really think that the Federal Government will shrink in size? It hasn't since the creation of the Federal Reserve. And I don't think Obama has plans to change this.
6. A huge Federal Deficit part two... it's so big that it needs to be funded in two parts--through theft of its citizens (taxation) and through the selling of debt (theft of future generations). In order to sell debt, which is necessary to fund social programs and fight wars, there is no way our government will allow for a prolonged deflation.
7. Obama Care... how will this get paid for? I don't believe the Government's budget projections. This program was simply a necessity for funding short term liabilities (social security and medicare).
8. The Tea Party... just another disillusioned group. Will the Tea Party force the Governments hand? I think not. When they start saying let's get rid of social security and medicare, I'll start taking a closer look at the Tea Party.
I'm sure I could add to the list, but that's not necessary as I'm sure you can see where I'm going.
If you think only in terms of "nonintervention" economics (free markets), then yes, we would get prolonged deflation. But, in the USA, that is not what we have. What we have is a mixed economy (Government intervention to influence the free market). And unless that changes, then the Government is going to continue to find ways to influence the market. It's what people want. They want their Social Security... they want their Medicare. They want what they payed for. At least this is what they believe.
Remember, the printing press can be used to pay direct to the people too! Bush proved this early in 2008 when he mailed checks to everyone. Will this happen again? I don't know. What I do know is that there are many bills coming due. And, although our Government is slowing its intervention, it's only because they are thinking of their next strategy.
