Inflation / Deflation

What is inflation? What is deflation? Is the US or the world going to end up in inflation or deflation? Can both happen at the same time, but in different parts of markets?

A help to answering these questions is an article called "Gold and Deflation: A Dissenting Dissection" by Bob Landis at The Golden Sextent. It starts here.

Bob brings up a neat point a lot further down in the article. That some establishment heads (Roach and Volker are 2 examples) are talking like gold bugs talk and it's not shaking up anybody or the establishment if you measure shaking by major price changes in the financial markets. It really is something when you stop to think about it. Boy! Just wait till the real fear sets in and the prices of gold and silver get radical.

Here is a quote from the article:

"Peter G. Peterson, Chairman, The Blackstone Group; former Chairman, Council on Foreign Relations; former Chairman, Federal Reserve Bank of New York [20]:

The world is increasingly alarmed by America’s profligacy. It’s not just the
staff of the International Monetary Fund who lecture us as if we were a banana
republic. Global leaders at the Davos World Economic Forum and other venues
speculate openly about how long the dollar will remain the world’s reserve
currency, and about whether the U.S. financial system will take down the
global economy when it implodes.

Stephen Roach, Chief Economist and Director of Global Economic Analysis, Morgan Stanley [21]:

The day is close at hand when US monetary policy must get real. At a
minimum, that will require a normalization of real interest rates. Given
the excesses that now exist, it may even require a federal funds rate that
needs to move into the restrictive zone -- possibly as high as 5.5%. Yes,
this would cause an outcry -- perhaps similar to that which occurred in the
spring of 1997 on the occasion of the Original Sin. But in the end, there
may be no other choice. Fedspeak has taken us into the greatest moral hazard
dilemma of all -- how to wean an asset-dependent system from unsustainably
low real interest rates without bringing the entire House of Cards down.
The longer the Fed waits, the more perilous the exit strategy.

Under normal circumstances, that is to say, at a point in time when the nation was not in the grip of magical thinking, comments like these could reasonably be expected to prompt editorial outrage, a hue and cry for investigation and reform, and a great deal of handwringing and fingerpointing on the part of politicians. It is a measure of just how far gone we are that when even icons of the establishment start talking like goldbugs, nobody will listen. Welcome to our world."