Friday, February 25, 2011

Can't Pretend Much Longer -- Inflation is Here

Noticed food prices lately? Or perhaps the price of gas at the pump has caught your attention. You probably didn't know that raw cotton is up 180 percent since a year ago. Guess where that will take clothing prices. Think deflation is our problem, think again. Inflation is here.

US monetary policy and US debt policy hinge on the assumption of deflation. So much for those policies. Be prepared for major increases in treasury rates which means a dramatic and unanticipated increased in annual federal fiscal deficits. Things are going to get a lot worse quickly.

Bernanke and Obama are going to reap the results that their policies have sowed. A return to the Carter days -- stagflation is back. The stock and bond markets will struggle from here.