The fed cannot inflate enough without sending treasury yields soaring... Sorry—deflation over the next 5 years is about 95%+ likely. The fed is almost out of bullets. They only have 2 left and only one of which could work — buy US Gov’t long bonds. The next is printing but there are a lot of issues there—even if they ran the presses 24/7 on nothing but $100s they couldn’t hyperinflate with the wealth, job, and wage destruction going on right now. We’d have to introduce like $1000s, $500s and $250s to even think about hyperinflation right now. Unless you can push wages and demand up and reignite the credit bubble we are on the path to deflation—just like during the great depression. As was posted by Mish in a rebuttal to Schiff, the money supply soared ridiculously in 1931 also but was followed by the worst deflation in the history of the US.I go along with the deflation scenario.
Deflation only just got here and has a few years to play out, to run its course after 25 years of inflation ever since Paul Volker eased up on his clampdown which back then was called disinflation. But was a Fed imposed deflation to reign in the Jimmy Carter inflationary episode
Martin Weiss has lots of good rationales for being in the deflation camp. Mish and Roubini are also deflationists
But right now there is an inflation blip with gold, natural resources stocks and crude up and the USD down
My scenario is a battle between the two. Deflation has the upper hand right now, but inflation is going to manifest as a psychological phenomenon (bubble) like it did last winter and spring. The "wage push" part of inflation is dead of course, but the "use it or lose it" part will come into play. But there will also be borrowing to bid up commodities once the psychology changes.
Last but not least, the deflation in credit has not translated into broader deflation. There are few price drops other than energy that was way overpriced and has now undershot.