Monday, January 23, 2012

Inflation? Oh Yeah!

More QE (printing money to buy Treasury debt) is a matter of when, not if,” says our Assoc. Editor ralph Lockwood, eyeing next week’s meeting of the Federal Reserve’s Open Market Committee.
It might not arrive next week, but arrive it will, Ralph explains: “You need only consider the imperative to keep interest expense low for the biggest borrower of all: the U.S. government. The Fed’s zero rate policy has led to lower interest expenses, despite exploding Treasury debt.”
“Since late 2007, debt held by the public has doubled from $5 trillion to $10 trillion, yet interest expense on the debt has declined from $230 billion to $190 billion:”

“More investors,” says Ralph, “will come to understand that everything they learned in college about Keynesian economic policies is invalid unless total systemic debt grows eternally. They’ll start to design portfolios for an environment of inflation or deflation, not a happy, ‘Goldilocks’ scenario.”
Ralph’s taking sides: “Given the macro backdrop, and how governments and central banks are dealing with the limits of sovereign debts, I’m expecting inflation to get steadily worse.”

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