Sightings of references to the term "deflation"

[jk]

Re: Sightings of references to the term "deflation"

Well Prechter is at it again ...

The 'D' Word: Let's Talk About Deflation

i think we should skip prechter and gary shilling; they've been talking steadily about deflation since the 1980's.

[GRG55]

Re: Sightings of references to the term "deflation"

i think we should skip prechter and gary shilling; they've been talking steadily about deflation since the 1980's.

Is Elliott Wave Theory High Priest Robert Prechter Certifiably Insane?

July 06 2010

Fear is easy to sell. As humans, our core instinct is to avoid pain and survive.

Recently, famed Elliott Wave pundit Robert Prechter has been beating the drum for Dow 1,000. Given all the fear of Big Government and crony corporations, Prechter has some serious passions to exploit. Or, is he simply offering objective financial projections? Or worse, is he certifiably insane?...

[Rajiv]

Re: Sightings of references to the term "deflation"

Or worse, is he certifiably insane?...

I think the certifiably insane are those people who expect continued exponential growth in face of increasing resource and environmental constraints, and who, if they have their way, will cause immense pain and suffering to the inhabitants of this rather small planet (it seems the only one in our neck of the woods capable of sustaining life!)

So if we are to survive, deflation has to take place, and new paradigms have to replace the failed ones of today.

[GRG55]

Re: Sightings of references to the term "deflation"

I think the certifiably insane are those people who expect continued exponential growth in face of increasing resource and environmental constraints, and who, if they have their way, will cause immense pain and suffering to the inhabitants of this rather small planet (it seems the only one in our neck of the woods capable of sustaining life!)

So if we are to survive, deflation has to take place, and new paradigms have to replace the failed ones of today.

I believe we are on a continuum Rajiv...that new paradigms have been replacing failed ones for some considerable time now. Our present attitudes towards the environment, sustainability, resource exploitation and so forth cannot be compared to the attitudes most of the developed world citizens held just a few years or a few decades ago. They have been continually changing and that will not cease any time soon.

There is always risk of a catastrophic "accident" precipitated by man. In the immediate post-WWII decades that risk was viewed to be related to nuclear armaments, as some of our governments urged us to build backyard bomb shelters. That should be a good illustration of how skewed and ridiculous our behaviours can become when it comes to "doom and gloom" promulgated by those we apparently respect and look to for guidance [back then we apparently had greater confidence in our governments]. Perhaps the current risk originating from our own hands really is catastrophic global climate change. But even there, despite setbacks such as Copenhagen, attitudes have changed and will continue to shift and new paradigms will emerge.

Deflation, on the other hand, is merely a monetary phenomenon...far from inevitable, and not even probable...

[Rajiv]

Re: Sightings of references to the term "deflation"

Deflation, on the other hand, is merely a monetary phenomenon...far from inevitable, and not even probable...

Yes, but monetary phenomenon are extremely powerful in determining human behavior. Never underplay the potential for mischief wielded by human greed, particularly when in the hands of "charming sociopaths."

The current monetary paradigms required continued economic growth. Without real growth they quickly fall apart. There is the realization that the "developed world" can no longer sustain that growth. So the expectation has shifted to the "developing world" in order to keep the "money game" on a continued growth trajectory. That line of thought is also fraught with danger, as has been pointed out here (for all intents and purposes, India has similar problems to that of China -- compounded by the continued population growth)

[jk]

Re: Sightings of references to the term "deflation"

i claim professional standing to decide who is certifiably insane, and i can tell you that there's plenty to go around.

[Rajiv]

Re: Sightings of references to the term "deflation"

i claim professional standing to decide who is certifiably insane, and i can tell you that there's plenty to go around.

If I were to take DSM (IV) at face value, then a case could be made that there is no one on this Earth without a mental condition (or two, or three or ......)

[metalman]

Re: Sightings of references to the term "deflation"

Deflation, on the other hand, is merely a monetary phenomenon...far from inevitable, and not even probable...

certified members of the alzheimers debate club want another round of inflation vs deflation debate. inflationists won twice, in 2001 & again in 2009. deflationists will lose over & over & over & over & over no one will remember or why... not even here on itulip. amazing. maybe only you & me & grape & 2 - 3 others.

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

i think we should skip prechter and gary shilling; they've been talking steadily about deflation since the 1980's.

Being correct in one's thought process and correct in time are two different things, unless for example one says "tomorrow the world will end," then on Tuesday we are still here in which case the prediction was wrong. However, it may well be correct that someday the world as we know it on Earth will end.

Personally I think it is a mistake to disregard totally what Prechter, Schilling, Shedlock have to say; just as well I think it may be a mistake to take what anyone person says in regard to all this debacle's unwinding and to place a single bet on your guru's being correct.

Prechter when asked by Jim Puplava some while back "How accurately can crashes be predicted," replied "If I knew, I wouldn't have called a half a dozen that didn't happen." I believe timed predictions are to some degree luck when they turn out correctly.

It strikes me as pertinent what Prechter was quoted above in the post by Fiat Currency pst #75:

Prechter: Sure. In the simplest terms, creditors will stop lending, which will keep the credit supply from inflating. And debtors will default, causing the supply of outstanding debt to deflate. This will overwhelm government and central-bank efforts to inflate, and will result in deflation. These trends have already begun.

Believe me, I understand people’s resistance to this scenario. The case for runaway inflation seems so logical. Over the past eight years, the Fed’s lending rates have twice fallen to zero, meaning that credit is free. The Fed has created $1.5 trillion of new money. Central banks around the world have offered unlimited, cost-free credit. The government is spending money like mad. And the Fed and the Treasury have bailed out or guaranteed another trillion or two of bad debt and promise to cover even more. Oh, and the Chairman of the Fed swore eight years ago that he would drop money from helicopters.

There is only one problem with the logic involved: It does not lead us to present conditions. In the great inflations of history – such as what occurred in Germany in the 1920s and Zimbabwe in the 2000s — several things happened: The money supply zoomed; interest rates soared to double and triple digits; commodity and stock prices went up; consumer prices rose relentlessly; and people raced to get rid of money as fast as they got hold of it.

Today, not one of these events is happening. In fact, the opposite is happening: M3 (a measure of the amount of money and credit in the system) is contracting at its fastest pace since the 1930s. Interest rates on Treasury bills are stuck at zero. The CRB index of commodities is at half its value of just two years ago. The stock market is lower than it was 10 years ago. The PPI and CPI (measures of producer and consumer prices) have a zero rate of change. People are struggling to get anyone to part with a dollar: They can’t get loans, they can’t sell their houses, and they can’t land a job. And Walmart is cutting prices. This is the “Bizarro” version of Germany and Zimbabwe: Everything’s backwards.

Prechter in "Conquer the Crash" (2002) page 111, "If borrowers begin paying back enough of their debt relative to the amount of new loans, or if borrowers default on enough of their loans, or if the economy cannot support the aggregate cost of interest payments and the promise to return principal, or if enough banks and investors become sufficiently reluctant to lend, the "multiplier effect" will go into reverse. Total credit will contract, so bank deposits will contract, so the supply of money will contract, all with the same degree of leverage with which they were initially expanded. The immense reverse credit leverage of zero-reserve (actually negative-reserve) banking, then, is the primary fuel for a deflationary crash."

From the above quote by Prechter, there is little with which I can disagree as being withing the realm of possibilities:: however, I personally would prefer the use of "a world of deep shit" vs. Prechter's choice of "deflationary crash."

[metalman]

Re: Sightings of references to the term "deflation"

see my post... Alzheimers Debate Club... inflation vs deflation again???!!!

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

Here's an interview with Ray Dalio from Barron's Feb. 7,2009

http://online.barrons.com/article/SB...el_article%3D1

Recession? No, It's a D-process, and It Will Be Long

Why are you hesitant to emphasize either the words depression or deflation? Why call it a D-process?

Both of those words have connotations associated with them that can confuse the fact that it is a process that people should try to understand.

You can describe a recession as an economic retraction which occurs when the Federal Reserve tightens monetary policy normally to fight inflation. The cycle continues until the economy weakens enough to bring down the inflation rate, at which time the Federal Reserve eases monetary policy and produces an expansion. We can make it more complicated, but that is a basic simple description of what recessions are and what we have experienced through the post-World War II period. What you also need is a comparable understanding of what a D-process is and why it is different.

You have made the point that only by understanding the process can you combat the problem. Are you confident that we are doing what's essential to combat deflation and a depression?

The D-process is a disease of sorts that is going to run its course.

When I first started seeing the D-process and describing it, it was before it actually started to play out this way. But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had deflation?

The answers to those questions all point to times other than the U.S. post-World War II experience. This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s.

Basically what happens is that after a period of time, economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States.

A bit more:

Are you a fan of gold?
Yes.

Have you always been?

No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio.

What about bonds? The conventional wisdom has it that bonds are the most overbought and most dangerous asset class right now.

Everything is timing. You print a lot of money, and then you have currency devaluation. The currency devaluation happens before bonds fall. Not much in the way of inflation is produced, because what you are doing actually is negating deflation. So, the first wave of currency depreciation will be very much like England in 1992, with its currency realignment, or the United States during the Great Depression, when they printed money and devalued the dollar a lot. Gold went up a whole lot and the bond market had a hiccup, and then long-term rates continued to decline because people still needed safety and liquidity. While the dollar is bad, it doesn't mean necessarily that the bond market is bad.

I can easily imagine at some point I'm going to hate bonds and want to be short bonds, but, for now, a portfolio that is a mixture of Treasury bonds and gold is going to be a very good portfolio, because I imagine gold could go up a whole lot and Treasury bonds won't go down a whole lot, at first.

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

From Barron's SATURDAY, MAY 29, 2010 AN INTERVIEW WIH RAY DALIO

http://online.barrons.com/article/SB...el_article%3D1

Set Aside Fears of Inflation -- Just for Now

The depreciation of the major currencies and the printing of money will not cause a significant general level of inflation anytime soon.

Explain why the printing of money won't cause inflation.

The printing of money will offset the deflation that is coming from the weak demand for goods and services due to weak credit growth. For example, in March of 1933 the U.S. printed a whole lot of money, and that had the effect of converting deflation into modest inflation, but not a high rate of inflation.... My point is, in developed countries there is too much of most things at the moment, and that's creating a deflationary environment. There is too much manufacturing capacity. There is too much labor. There is too much housing stock. As Europe's economy weakens and its debt crisis worsens, the printing of money does not mean that it will produce an accelerating inflation because simultaneously there is also less being purchased, and the surpluses are already causing deflationary pressures. That is why, contrary to almost everybody's belief, I believe the bonds in countries that can print money will be good investments.
Thanks, Ray.

Do not assume that what I choose to quote is necessarily the most pertinent information from the article. I know Barron's is a subscription, but don't have the answer for those who don't subscribe but who would like to read the entire interview.

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

Paralyzed by Debt 7/12/2010


http://www.nytimes.com/2010/07/18/ma...1&ref=magazine

Total household credit has contracted for seven straight quarters. Mortgage debt is down $462 billion from the peak, which it reached in November 2008. Bank-card borrowings, which peaked two months later, are off $126 billion. Auto loans have fallen $122 billion; home-equity lines, $77 billion.

To peruse such figures is to get a whole new sense of America’s economic crisis. The bank failures and bailouts of the fall of ’08 called to mind a great and terrible battle. The drone of falling credit numbers since then suggests a ponderous army in drawn-out retreat. As Stephanie Pomboy, publisher of the newsletter MacroMavens, has pointed out, government transfers like stimulus spending and tax credits masked the effects of diminishing credit for a while. That is to say, even if people were unwilling to borrow, they were happy to spend money they got from the government. Now that government supports are being pulled away, the effects of deleveraging are in plain view. Home and car sales are plummeting again. Job growth has shrunk to a sliver. Personal bankruptcies are soaring. Deflation, a dangerous state of economic dead air, when prices fall from lack of demand, is a distinct possibility.

Credit and inflation are really two sides of the same coin. When credit expands, people have more money to pay for goods, and prices go up. The Federal Reserve Board has kept short-term interest rates at nearly zero, effectively jamming the credit-creation pedal through the floor. But it hasn’t persuaded people to take out their wallets or their credit cards, stoking fears of a Japan-like deflation. Core inflation (which measures price increases of everything but energy and food) has fallen to its lowest level in 44 years. As people pay back loans rather than take out new ones, they exert a drag on business. As Pomboy writes, “The U.S. economy is in the grips of a powerful but silent undertow.”

Some of the deleveraging is being forced by banks. Underwriting standards have toughened, making it harder for people to get loans. (This is a good thing, by the way. The reason we got into trouble is that banks were too easy.)

Indeed, the underlying cause of deleveraging is that Americans got too leveraged. This excess was decades in the making. In the aftermath of World War II, the average family earned far more, each year, than the total of its borrowings. But beginning in the 1970s or so, the culture relaxed. Credit cards and mortgage options proliferated. By 2001, household debt reached a par with annual after-tax household income. (The average family owed what it earned.) By the peak of the bubble, in 2008, borrowings had surged to 36 percent more than income.

Which raises the issue: how much of that debt will have to be repaid before people return to their customary, and stimulative, profligacy? Thus far, we have undone only a portion of the excess. Household debt now stands at 26 percent more than income — still very high by historical standards. “There is no magical level where it should be,” says David Resler, an economist with *Nomura Securities. “There is no clear equilibrium.”

Absent a massive federal stimulus (and maybe even with one), the economy is not likely to show much life until deleveraging ends. The conventional view is that we are almost there. That assumes that the average American will resume borrowing and spending before the prior excesses are fully washed out. To return to the status quo of before the housing boom — say, back to debt to income ratios prevailing in 2000 — it would take five more years of deleveraging at the current rate. Deleveraging cycles are rare, notes David Rosenberg, an economist with the Toronto firm Gluskin Sheff, but five to seven years is typically what they take. The Conference Board, which asks consumers every month whether they anticipate buying a home, a car or an appliance within the next six months, reported plummeting numbers in June. Consumers used to get their kicks from new Sub-Zero refrigerators; now they chip away at their balances. The turn is yet to come.

Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer and author of “The End of Wall Street.”

[Fiat Currency]

Re: Sightings of references to the term "deflation"

Well, then how about Gary North ?

Some commentators on the U.S. economy and the European economy are predicting that there will be "quantitative easing" soon. This is a euphemism for central bank inflation.

I have been reporting for months that the present policy of the Federal Reserve System is to deflate the money supply. The chart of the adjusted monetary base since early March indicates this. Similarly, consumer prices have remained flat or close to it this year.

I believe that, at some point, the FED will begin to inflate. But, for now, there is no need. The economy is not falling sharply. There are increases in factory production. Consumer optimism, while falling this month, is still above 50. The unemployment figures remain high. But there is no visible increase in the figures. The FED is not getting blamed for anything objectionable. When the FED gets no criticism, this is good news at the FED. "If it ain't broke, don't fix it." The FED is not inflating.

The FED can expand M1 with no trouble. It can impose a fee on excess reserves held by commercial banks at the FED. The FED pays the federal funds rate to banks. This is under 0.25% most of the time. The risk to the FED of imposing a fee is that this will send a signal to the bond market: "Sell!" Why should this be a "sell" signal? Because fund managers will perceive this as a reversal of policy: quantitative easing.

Quantitative easing was the FED's policy in October 2008, when it doubled the monetary base. That was to prevent a meltdown of the capital markets, especially big banks. This was the largest increase in the base money supply in one month in American history. The FED got no criticism.

So, the FED expanded the monetary base. As it has turned out, "So what?" was the correct question. That is because commercial banks did not lend these funds. They increased their holdings of bank reserves at the FED instead. They offset the increase in the monetary base. This kept M1 from doubling. It kept prices from doubling. This saved the FED from the worst crisis in its history.

The policy of the commercial banks to forego lending for the sake of guaranteed reserves indicates that bankers do not trust their banks' balance sheets. They do not want to be subject to withdrawals by other banks. This is why they have excess reserves. They can point to these reserves as proof of their solvency, which is in fact the case.

Because the banks are not borrowing from each other to meet their reserve requirements, the federal funds rate is at the lowest in history. This decrease in demand, not Federal Reserve policy, is holding down the FedFunds rate, which is the only rate that the FED controls directly through its purchases of Treasury bills.

The media attribute the low FedFunds rate to intervention by the FED. Bernanke does not give a speech to some bankers' group or testify to Congress regarding the actual cause of the low rates. He does not hand out a copy of his speech that says this:

There has been considerable confusion in recent months regarding the cause of a federal funds rate barely above zero since late 2008. The financial media attribute this to Federal Reserve expansion. This explanation is incorrect.
The Federal Reserve has maintained its balance sheet's gross asset base ever since the crisis of October, 2008, when it doubled the monetary base. For almost two years, the FED has been selling off its liquid Treasury debt. We had to do this in order to buy the otherwise illiquid bonds of Fannie Mae and Freddie Mac. Without the FED's purchases, there would have been a crisis in financing for mortgages.

In April, the Federal Reserve ceased buying F/F debt. Today, the People's Bank of China is the major purchaser of agency debt, meaning Fannie and Freddie Mac mortgage debt bonds. We can see this reported monthly in the Treasury's "Treasury International Capital" report, the report with the infelicitous acronym TIC. When people hear "TIC," they immediately think "TOC." Nobody in the financial world wants to think about TOC, whatever it may be.

The Federal Reserve has adopted a slightly deflationary policy since late February. This may or not be part of our promised policy of unwinding. I'm not going to say here. If I say it is, there might be a sell-off of the stock market and a mad rush to buy Treasury bonds. The Treasury would like that, of course, since it would lower T-bond rates. But that would hit the profits of the largest U.S. banks, which are making a killing on the spread between the Federal funds rate and the T-bond rate.

Let's face it: the large banks are sticking it to their depositors big time. The depositors get almost nothing, and the banks get guaranteed money from the Treasury on its AAA-rated bonds. Yes, I know: the credit-rating agencies have taken a lot of criticism for giving AAA-ratings to the illiquid leveraged debt contracts that the banks swapped with the Federal Reserve at face value for liquid Treasury debt in late 2008 and early 2009. But if it were not for the AAA rating, who would buy U.S. Treasury debt today? Not the Federal Reserve's fully vested pension fund, let me tell you! Anyway, the present cause of the historically low FedFunds rate is the fact that banks are not borrowing overnight to cover the paper-thin margins between their reserve requirements and the money they have loaned out. No one is loaned out anywhere near the maximum allowed by Federal Reserve policy.

Why not? Because the bankers are scared out of their wits over their own balance sheets, whose assets are listed at face value, according to the Financial Accounting Standard Board's reversal in 2009 on FAS #157, which required banks to list assets at market value. What if the rule gets changed back? With commercial real estate assets down 40% and likely to fall a lot more over the next two years, what banker wouldn't be scared? We here at the Federal Reserve are not about to rock the boat. We sit here, as good stewards of the legal monopoly over the money supply that was granted to us by the government in 1913. We are not sure what the commercial banks would do if we started charging interest on excess reserves. So, we just keep paying them next to nothing and cross our fingers. So far, so good.


For the latest report on the Treasury's TIC report, click here.

China has been buying agency debt, which at least pays above the T-bond rate.

THE BOND DEALERS BOW OUT

According to a recent report on Bloomberg, America's bond dealers have begun to pull out of the market for Treasury bonds. "For the first time since the government started collecting the data, central banks, mutual funds and U.S. banks are buying more government securities at Treasury auctions than Wall Street's bond dealers."

Then who is buying the bonds directly at Treasury auctions this year? Foreign investors, mainly central banks, and individuals and fund managers. They have bought 57% of the bonds, compared with 45% at this time a year ago, and 32% in 2008.

What is going on? The reporter speculates that this is the result of a low rate of price inflation coupled with fear that the recovery has stalled. This has created demand for government bonds. The 10-year bond is paying below 3%.

There is no fear of inflation, one fund representative said. The bigger fear is deflation.

As to what kind of deflation, the article did not say. Deflation of stock indexes, perhaps. Why there should be fear about lower prices is a mystery to non-Keynesian economists. Shoppers want lower prices. So what?

The interest rate on 10-year notes fell to 2.9%. It has not been that low since December 2008, after the collapse of Lehman Brothers. There was a rush toward AAA safety then. It is happening again.

Then what of the recovery? Investors are investing as if they do not take it seriously.

On July 16, the rate on 2-year notes fell to just over a half of a percent, an all-time low in the post-War era.

Consumer confidence is down to 66.5, according to the Thomson Rutgers/U. of Michigan index. Retail sales (except for autos) have fallen for two consecutive months for the first time since 2008. New home sales fell to a record low in May, after the first-time home buyer tax credit was allowed to die.

The article parroted the line about Federal Reserve policy.

Even bond-market bears such as primary dealer Morgan Stanley have trimmed forecasts for U.S. yields to rise in the second half of the year, with slow growth likely to keep the Federal Reserve from increasing record low borrowing rates into 2011. The target for overnight loans between banks has been zero to 0.25 percent since December 2008.

The assumption is that the FED is keeping rates low, and is not expected to increase "record low borrowing." The Federal Reserve has nothing to do with record low borrowing, except insofar that its deflationary policies are expected to tank the economy. Bankers do not like to lend money prior to a tanked economy.

Morgan Stanley of New York has lowered its estimate for the 10-year yield at the end of the 2010 to 3.5 percent from 5.5 percent at the start the year. The median projection of 55 forecasts in a Bloomberg survey is 3.36 percent, down from 3.80 percent in June.

This indicates that Morgan Stanley had its head in the clouds earlier in the year. If these analysts assumed 5.55, they assumed something like a boom economy. They must have assumed the hoped-for V recovery.

Primary dealers, which are required to bid in government auctions and act as the trading partner to the New York Fed, have won the lowest proportion of Treasuries in auctions since the government began releasing the data in 2003.

These dealers do not see any reason to compete with investors who are willing to bid down the bonds' rate of interest.

Purchases by China in recent months have focused on longer-term debt, unlike in 2008, when most of the cash went into Treasury bills. While China has slashed its bill holdings by nine-tenths to $6.8 billion as the global credit crunch eased, total holdings are up 8.3 percent in the 12 months through May, with notes and bonds due in two years or more surging 46 percent, the Treasury said July 16.

This indicates a slowing economy. American companies on the S&P 500 have accumulated near-cash assets in the range of $2.3 trillion. They want liquidity, just in case there is a turndown.

Consumer credit has declined in 15 of the last 16 months. Factory orders fell by 1.6% in May from April.

The recovery, such as it is, has reversed.

So, companies are holding back on expansion. The report says that 87% of the 23 S&P 500 companies that reported earnings have beaten analysts' projections for earnings per share. The question is this: Is this still being driven by cost-cutting? So it seems.

Who is buying Treasuries? Investment funds and U.S. banks. But increases have been marginal: up about 2% since December 31, 2009.

Banks have tightened their lending standards. Meanwhile, consumers' credit ratings have fallen. So, banks are buying more Treasury debt, when they are investing in anything at all.

Company borrowing is down almost 30% in the first half. This indicates contraction, not recovery.

Globally, bond returns topped stock gains by the widest margin in nine years in the first half as optimism about the global economic recovery waned.

The bond market is forecasting slower growth worldwide in the second half of 2010.

CONCLUSION

Those who believe that the Federal Reserve is fearful of a flat price index, because this index reflects a stagnant economy, must believe that the FED is not the cause of today's lack of price inflation. It is the cause, but only indirectly. It refuses to force banks to lend by imposing fees on excess reserves. The FED could reverse the stagnant M1 and stagnant M1 money multiplier in a matter of days.

We should conclude that the FED is content with the slowdown. Then what will change the minds of the FED's policy-makers? A major recession would. I don't think a mere slowdown in the rate of growth will.

If the FED senses a crisis brewing, it will inflate. Right now, it doesn't sense this.

This gives us more time to allocate our capital in ways that will hedge against price inflation.

This could come at any time, but I do not see it yet. There are no signs of crisis in the American economy, just sluggish growth. For the FED, sluggish growth does not bring forth calls to audit the FED or reduce the FED's authority. In a time of calm, the FED avoids bad publicity. Until the unemployment rate shoots upward, and the stock market falls sharply, the FED will bide its time.

When it starts to inflate, there will be time to react. If you can take steps now to hedge, do so. But shop. Wait for emergency sales.

July 21, 2010