ATLANTA— I keep watching the headlines, waiting for the big day to come. Will it come in a bang? Or will it play out over a year or two of painful, elongated decline? The continued debasement of the dollar by our federal government through Barack Obama’s record deficit spending and through Ben Bernanke’s quantitative easing is going to have serious consequences, I am certain. I would love to be wrong, but I fear big-time inflation in the upcoming years. One of the greatest tenders for inflation is when foreigners significantly slow down or end purchases of your government’s debt. And China is giving every indication they have no more appetite for U.S. treasuries and mortgage-backed securities.
So — will it come with a bang? Will we have a week in the upcoming months where there is a dramatic and precipitous plunge? A run on the dollar, where everyone tries at once to liquidate their holdings of U.S. dollar denominated debt? Or will the dollar just be slowly whittled away, as foreigners and investors slowly transition to safer holdings?
That’s what I am waiting for and watching for. And it really, really bothers me. It is time for an end to the fiat monetary system. But I fear what that end might bring us.
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
This is the million dollar question. I imagine it won’t be over night but I also imagine it won’t be to slow either. I think it will come on relativily quickly. As one trends out a stabilization in employment which is not slowing down to much I think this will be one of the leading indicators for me. Although the news keeps saying “green shoots” I don’t buy it. I wrote previously that I do not think inflation will become a problem until employement is stabilized, which is to say until people begin to feel secure in their jobs they’ll hold back their spending. As long as American’s hold back spending there won’t be to many dollars chasing to few goods.
I’ve been working on my companies financial budget and five year projections. Inflation concerns could really hit the health care industry in terms of medicine, equipment, and supplies. It can also hurt our staff increasing stress on the average worker which can influence productivity and patient satisfaction. This translate’s into reduced top of the line revenue on top of patients having to choose to go to the doctor or purchase groceries depending on the severity in inflation. In our low income area there isn’t much discretionary income and I don’t necessarly want to see people forgoing health services (such as checkup and other somewhat discretionary preventative measures such as mammograms and the like).
I’ve conducted various sensitivity analysis’ to prepare alternative solutions to various inflation cases in order to maintain the bottom line, optimal employement, and productivity. What I can’t control though is how patients use health care in such a low income area where many of them depend on the reduced cost services we provide when they don’t have private insurance with sliding scale fees.
I’m keeping my eye out for early indicators of hyper-inflation, but again I don’t expect to see it until after employement stabilizes and unemployement is still rising, just slightly slower then expected. If I had to guess I’d say it will stabalize in Oct/Nov of this year. We’ll have good spending in Dec to push inflation in the first two quaters of 2010. That’s my pure guess.
Fair guess on the timing of all of this. I’m probably with you. I think more generally sometime in 2010 or 2011.
It could be much sooner though, irrespective of the employment picture. I think if investors and governments dump treasuries, the dollar will tank against foreign currencies, driving up the price of oil (for which all transactions are dollar denominated), the price of foreign-produced goods, and interest rates. Government will have to print tons of cash to try inflate it’s way out of the debt obligations it will incur. I think we could theoretically have a period of stagflation – much like the 1970′s.
I think even with low level demand as it is right now, there can still be too many dollars in the system to drive up prices abnormally. Inflation is always a monetary problem, per Milton Friedman.
anyway – it is a million dollar question. no pun intended, i’m sure. ; )
You do have a point there. In that case Russia’s announcement to sell U.S. Treasuries and instead by IMF bonds should have you VERY concerned!!!
Yep – that’s bad. And the bond auction today was really bad- 10 year notes pushed up near 4 percent. That’s still ok by historical standards, but not good when we are still trying to get out of the woods and on the road to full recovery (which would be sooner than later, if we weren’t burden by so much government debt and regulation).