I read the guys arguing about it over on Minyanville.com, and I can't for the life of me figure it out, whether we're deflationary or inflationary; but the biggest deflationist over there, Mike Shedlock, doesn't explain why, if we're in a deflationary environment, prices are going up. He and the deflationists insist on a definition of inflation/deflation that is couched solely in terms of the monetary aggregates -- M1, M2, M3 -- and does not reflect what people (as opposed to experts) normally think of as inflation, viz., price inflation.
They insist that price inflation does not = inflation, only M2/M3 inflation = inflation.
They suggest then that price inflation is now delinked from monetary inflation. Which helps a whole lot, guys -- thanks for nothing!!!
Yeah that sounds like some real three card monty there.
The thing about monetary inflation is that yes it will create inflation, but where? Sometimes it’s in wages and then prices, sometimes going to speculating in commodities or financials, sometimes it gets exported like we’ve been doing for a long long time, then gets recycled back into the stock and bond markets, like the Chinese have done.
You weren’t seeing it in prices from wages to consumers in the US because foreign competition has been keeping wages and prices down, as was technology and now debt levels. That’s shifting now as China is driving quite a bit of inflation as they suck up commodities trying to do something tangible with all those unwanted dollars and US financial instruments.
Call it boomerang inflation if you will, plus a good chunk is just from commodity speculation as brokers and traders have no where to put it and they bank on China to continue to be a commodity draw, fueling a vicious cycle and race to plug excess dollars into a hole somewhere.
Thing is, we might see a situation of deflation and inflation at the same time as our long term debt and dollar printing binge is going to collapse on us and trigger a world deflationary recession. Yet because we are the reserve currency that all world commodities are denominated in, those dollars some day are going to get dumped completely, and commodities in our terms will soar while financial and non-tangible assets (and your job) fritter away to nothing, and you have both at the same time.