So: Is it time to pin on those Whip Inflation Now buttons once again? According to many mainstream experts, the answer is YES. They're leading the charge for a "WIN 2" campaign in the United States, and filling the financial airwaves with references to the 1970's oil crisis, wage freezes, and wheelbarrows full of cash.
Their logic is simple: As the U.S. government and Federal Reserve continue their hand-over-fist policy of printing money and forklifting trillions in bailouts to the battered banking sector -- eventually, prices will rise to compensate for the increase in supply.
They're forgetting one important thing: demand. The Fed's helicopters can continue crop-dusting all the currency it wants onto the U.S. economic soil; but prices won't start to "shoot upward" unless people actually spend the currency. Until that happens the "seeds" go dry and wither -- it's a condition known as "deflation."
Look around: the only real inflation is in the amount of talking about it. Since September 2007, the Fed has slashed interest rates ten times, to a record low of .25% to 0%. Combine that with the $12.8 Trillion in bailout money over the same period, and you have the single largest inflation-creating scheme in history. By all accounts, gold prices should be moonbeams above their March 2008 peak -- yet they haven't budged from the upper $800-$900 per ounce range in two years.
On a similar note: commodity values have weakened, the "face" value of many outstanding loans is crashing (See: July 15 Wells Fargo sale of $600 million in distressed subprime loans for $0.35 on the dollar), and the real estate slump continues to intensify -- despite mainstream claims to the contrary.
Housing: The second most illuminating sector of the economy is NOT signaling inflation. Quite the opposite; here, the following close-up from the August 2009 Elliott Wave Financial Forecast (EWFF) speaks for itself.
As for the foremost indicator of US economic health -- the consumer -- the August Financial Forecast offers this picture of Consumer Debt as a Percentage of Personal Income since 1983.
In EWFF's own words:
"As long as the value of real estate holdings was rising, consumers were willing to expand their debt burden. But psychology has completely reversed. Consumers are trimming their debt exposure at a quickening rate."