Watching & Waiting
July 9, 2009 by goldguru · Leave a Comment
Bullion Vault
As the US fights deflation, credit inflation is alive and well in China…
The INVESTMENT COMMUNITY is divided at present as to whether the world economy faces hyperinflation or deflation, writes Puru Saxena of Money Matters and Puru Saxena Limited in Hong Kong.
Some observers are convinced that the central banks’ printing press will take the world towards hyperinflation whereas others believe that the ongoing contraction in American private-sector debt will result in outright deflation.
But what will the future bring? It is my contention that we will get neither hyperinflation nor deflation.
What is more likely is that, over the coming months, we will get another deflationary scare. Any sell-off in the markets later this year will be met by an even larger stimulus from the policymakers and this will ultimately result in high inflation.
So I maintain my view that due to the unprecedented policy responses around the globe, the world’s economy will face high inflation over the medium to long-term. And the general price level will double over the coming decade.
In the near-term however, we will probably get another period when the market will (once again) become concerned about the prospects of a lengthy economic contraction. It is conceivable that the ‘green shoots’ hype currently doing the rounds will soon be replaced by more economic worries as a second wave of foreclosures hits America later this year.
It is therefore possible that before year-end we will witness large corrections in stocks and commodities. Conversely, we are likely to see big rallies in US government bonds, the US Dollar and Japanese Yen.
