Inflation Is Our Future

By Puru Saxena, GoldSeek

At present, there is a lot of confusion amongst the investment community and opinion is divided as to whether we will witness inflation or deflation.

On one hand, the deflationists are claiming that given the extremely high debt levels in the West, further inflation is impossible.  On the other side of the argument, many proponents of inflation are calling for Zimbabwe style hyper-inflation.  In this business, everyone is entitled to their opinion; however it is my contention that we will get neither deflation nor hyper-inflation.  If my assessment is correct, once business activity picks up, our world will have to deal with high inflation.

Although I have great sympathy for the deflation crowd, given the reckless attitude of the central bankers and their ability to create debt-based money, I do not believe deflation (contraction in the supply of money and total debt) is very likely.

For sure, in this post-bubble environment, American consumer debt continues to contract but this is being more than offset by the expansion in federal debt.  Over the past year alone, federal debt in America has surged from US$9.645 trillion to US$11.813 trillion. In other words, during the past twelve months, American federal debt has risen by a shocking 24.47% and it now stands at 83.52% of GDP!  Now, given the ability of the American establishment to essentially create dollars out of thin air, I have no doubt in my mind that it be able to inflate the economy.  However, this will come at a huge cost and the victim will be the American currency.

In fact, the recent weakness in the US Dollar is a sign that central-bank sponsored inflation has started to dominate the private-sector debt contraction in the West. Furthermore, over the past few weeks, various governments have issued US Dollar-denominated debt and this suggests that the carry-trade is back in vogue.  In a startling move, Germany recently announced that it plans to borrow money in US Dollars!

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