INFLATION MONSTER POISED TO STRIKE?

Yesterday I spoke in front of the Bakersfield South Rotary about my book and recent developments in the market. I used an article I wrote for the Bakersfield Californian (and posted here) as a way of introducing why we should be skeptical of all the "good news" coming out of the markets. In a few words, I argued that we have far too many costly supports, guarantees, and credits out there for anyone to be speaking about "the market" making a comeback.

What usually makes a presentation is the Q & A afterwards. I have to say that the questions I received from Bakersfield South Rotary were top notch. They took me across a broad range of topics that made it abundantly clear that this group understands how deep and complex our challenges are in the future. I was particularly struck by questions that made it clear no one is happy with the status quo and that inflation is on everyone's mind.


I bring this up because I ran across this post from nakedcapitalism.com, one of the better sites to follow if you want consistently good economic analysis. In a few words, the article sustains what I said yesterday and makes it clear that inflationary fears could become "hyper" inflation if we don't do something about the guarantees and credits that the Federal Reserve has extended to our financial institutions (about $12 trillion).

Without getting too technical (I hope I didn't) I said that inflation would come in the form of 1970s-like inflation (8-12%), but that we ran the risk of "hyper" inflation if we didn't do something about our commitments and guarantees to our financial institutions AND if the rest of the world (China, OPEC nations, the Europeans) decided to stop supporting the dollar.

Read the article for a deeper review of these dynamics. While the article might be a bit technical in some places it really is worth read. If you don't make it through, don't worry. I'll break it down on this Saturday's program.

- Mark

UPDATE: This probably doesn't mean much in the short-term, but long-term this can't be good if we continue on our current path.

“There can be no successful currency system, and particularly a global system, if the financial instruments that are used are denominated in only one currency ... Today, this is the case and the currency is the dollar.”

- Russia’s president, Dmitri A. Medvedev, at today's BRIC meeting (a meeting of the four largest emerging market economies - Brazil, Russia, India, and China - who met to discuss ways to reduce their reliance on the United States).