Sunday, August 15, 2010

With all the stimulus are we getting hyperinflation in the U.S.?

There is a contradiction here.
  • Many U.S. corporations are sitting on huge piles of cash. Just think Berkshire-Hathaway, Apple and Microsoft.
  • The U.S. consumer savings rate is at a decade's high and debt is being paid off.
  • Only the U.S. government is recirculating its stimulus money.
  • Corporate U.S., especially the large banks haul in cash with the bucket full. 
  • Consumer spending of the Baby Boomers has peaked and is on the decline. 
  • Housing starts are on the decline. 
  • Housing values are on the decline. 
  • Foreclosures are still on the increase, that means persistent low housing prices for years to come.
 So, there is no hyperinflation even with the current large U.S. deficit.

In Europe the governments are trying to cut their deficits and debt that were initially increased to help to get the Banks there to recover from the U.S. Subprime crises and the European real estate crash. Buying government and quality government bonds is at an all-time high due to stockmarket shy investors. They don't go into real estate but they do buy debt (do they ever learn?). The only ones holding back are U.S. banks who are skittish on mortgage loans - is that surprising?

So when you ad all this up, I'd say "Hyperinflation? You must mean DEFLATION!"

Many Corporations have seen their productivity fall lately. I guess they got the max out of their workers and will soon be forced to hire. In fact employment is creeping up in the U.S. and it shot up in Canada. Consumers will soon be more confident and start... consuming more. All the screaming this summer about the European Debt Crisis (do we still remember that?) scared the heck out of everyone. So now that that is passing, everybody will become more optimistic. In the mean time, we also delever (reduce debt); this means modest growth, lower credit demand and low inflation. And who will perform best? Alberta because the world needs energy to fuel the modest growing Western economies as well as the booming BRIC and emerging economies. The latter will become more internally focussed due to the increasing prosperity of the increasing middle class.

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