July 16, 2010
– Comments (3)
I usually watch Peter Schiff's material (he has a tendency to keep ranting for an extended period of time), however; I do not agree with his inflation views.
Housing prices are being artifically propped up by the Government via Freddie Mac and Fannie Mae, not normal market suppy and demand. Also if anything the US is in a deflationary state aka liquidity trap.
The US is going down the same path as Japan did after their real estate bubble burst, and Ben Bernake's responses from the FOMC meeting seem to acknowledge that. Also due to the predictable behavior of the Fed (this is before the FOMC meeting), it was always implicitly understood the Government would throw in another stimulus (just like Japan) vs. actually allowing the economic depression run its course.
Because of that, stock prices will either move sideways at best or move downwards in an extended deflationary environment (which is happening and will continue to).
Inflation may be an end result 50+ years from now, but it is not an issue in the short/mid term. Inflation would actually be a good thing at this point, and I'm sure Bernake would love that.
You are definitely correct that deflation is here to stay for a while. Do be careful though because eventually the dollar bubble will pop (probably after the govt bond market implodes)...start looking for this three years out or so.
PS was at least a few years ahead in predicting the real estate bubble. He may be similarly early on the U.S. dollar and U.S. treasuries.