As we have written for months now, inflation is becoming a worldwide problem. We do not believe in the traditional U.S. centric wisdom that as the U.S. economy slows, U.S. and world inflation will moderate. In our opinion (and based upon a great deal of research by ourselves and others), inflation will rise for several reasons.
They are:
- The money supply globally has been growing very rapidly for at least the last 2 years.
- Inflation has been held in check in the developed world by lower cost imports from the developing world replacing high priced manufactured goods. This cycle has now ended. Manufactured goods are rising in price, especially in the developed countries due to a rise in costs in the manufacturing countries and the lower U.S. dollar.
- Every solution currently being employed and/or contemplated to solve the current world’s financial woes (especially, the so called subprime crisis) will breed inflation in the longer term, and cause the rate of inflation to accelerate. I could waste a lot of your time going into this in detail, but I realize that I may already wearing out my welcome by mentioning these points so frequently.
- Historically, inflation has continued to rise for at least a year after the economy turns and begins experiencing a recession. Does this mean inflation combined with economic recession, or stagflation, is in our future for at least a year? I am afraid that it does.
- The question of will the U.S. dollar’s decline continue to feed inflation remains to be seen. I certainly hope that the powers that be in the U.S. have realized the unwise nature of the weak dollar policy. Soon the U.S. should start to do more to strengthen the dollar. Of course, this will have to wait until the Fed stops lowering rates to solve the financial crisis, but taking a strong dollar policy is essential.
No comments:
Post a Comment