I want to recommend you read Steve Saville's latest thoughts on the dynamics at work in the interplay between inflation and deflation, and the fears inherent therein: Money Confusion & Inflation/Deflation.Listen folks, this is really not that complicated. Many financial gurus keep their herds in line by making it seem that way, however. It is a great racket to be in where you can take a subject that scares the shit out of people (money and livelihood) and then wrap it in all kinds of esoteric mumbo jumbo and voila, a guru speaks from on high to his flock.
Saville lays out the simplicity of the dynamics as follows:
"Naturally, the fear of deflation that overtook the financial world last September-December provoked a massive inflationary response from the central banking community, leading, as usual, to the fear of deflation peaking at around the same time as the rate of monetary inflation was probing its highs of the past 20 years.
Equally naturally, the effects of the September-December monetary binge have recently started to become evident in some prices, causing the public's attention to shift from the so-called deflation monster to the potential for an inflation problem. And this is going on even though the rate of monetary inflation has since tapered off (M2 money supply has expanded by 2% -- equivalent to a relatively modest 5.2% annualised growth rate -- since the beginning of this year, and has not expanded at all over the past two months)."
We have begun showing the M2 and MZM money supplies in NFTRH of late (leveling off), as the inflation pump apparatus kicks in once again to get the herds offside. These same money supply measures along with things like the TED and LIBOR were used months ago as part of the NFTRH argument that the deflation impulse of Q4 2008 was a great OPPORTUNITY. And so it has been. This while the deflation gurus were locking in the end of the world. And no, I do not mean Prechter and EWI. They were taking massive profits and calling for a relief rally.
But now the same measures show the herd may once again be assembling on the wrong pasture, positively reinforced by a thousand fairy tales about hyperinflation coming here and now, and fixated on prices, which are the most lagging detail in the inflation/deflation debate. This is how the markets work. You come to this blog, you get a different view.
Anyway, Steve Saville is a sane voice of reason among an awful lot of garbage commentary and noise out there. Read this piece and consider it.
