Re: Inflation
That is correct.
The Fed lowered interest rates to historically low levels following the last recession, essentially giving money away at negative real interest rates. This provided a short term boost to the economy and spurred a rise in lending and liquidity.
Like I said, this has driven up the prices of most asset classes over the past several years. The accompanying rise in real estate prices is a good example of true inflation.
That type of "fix" is unsustainable, as it leads to the devaluation of your currency and the erosion of citizen's wealth.
My opinion is that there is a very real possibility of deflation in our future as credit tightens up and systemic problems in our banking system start to surface. I think that many of the credit that has been extended will eventually go bad (real estate is again a good example), essentially sucking out billions of dollars of fake "money" from the asset markets and resulting in a decrease in the money supply. This is similar to what happened in Japan in the 1990's, but I don't want to get into that discussion again. [img]/images/graemlins/smile.gif[/img]
I think that rising commodity prices are a separate issue altogether, based on global supplay and demand factors. Prices of goods can rise and fall regardless of monetary inflation. For instance, prices of DVD players and various Walmart goods have "deflated" the past several years due to the effects of Chinese labor.
Prices of some goods will rise and some will fall, but I do believe that we are in a long term secular bull market for many commodities.
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