Listener’s Q&A – Chris Waltzek

from Radio GoldSeek The 1st caller is concerned by the inflation / deflation debate. Our host challenges the deflationist rhetoric, noting that the dollar rally is insufficient evidence of deflation. Dollar strength represents a flight away from the euro currency alternative in anticipation of an imminent Greek default – the US dollar is simply the least sick currency in the ward. Deflationists have confused deflation (a decrease in the money supply) with disinflation (a decrease in the rate of inflation). As illustrated by Figure 1.1., in 2008 liquidity poured into the system, funds were reinvested by money center banks and key corporations in their own shares (buybacks / Treasury stock), sending the equities indexes higher while reducing the number of shares outstanding, a two-staged rocket propelling stocks into the exosphere. Takeaway point: the so called economic miracle or recovery required a five fold increase in the money supply from 2009 – i.e., the Fed diluted every existing dollar by five fold. Given the near certainty of a rate hike by September / December of this year, the market bubble could crater despite trillions of dollars in support – directing the Mt. St. Helens of equity / paper capital to undervalued safe havens, such as gold and silver. PODCAST HERE>>> After a year long consolidation, money printing is near the zenith, poised for a new break out – consolidation theory suggests at least a 50% increase in Fed debt to $6.5 trillion over the next two years. The Fed liquidity represents a giant options put of financial protection. Prediction: until the Fed money printing bonanza halts, expect the party on Wall Street to persist. The host answers questions from caller John and email messages from several friends of the show, including Vidya and Patrick. The 1st caller is concerned by the inflation / deflation debate. Our host challenges the deflationist rhetoric, noting that the dollar rally is insufficient evidence of deflation. On the contrary, dollar strength represents a flight away from the euro-currency alternative in anticipation of an imminent Greek default – the US dollar is simply the least sick currency in the ward. Deflationists have confused deflation (a decrease in the money supply) with disinflation (a decrease in the rate of inflation). The subtle nuance between deflation and disinflation can be visualized by imagining a car traveling along a flat desert road. As a mountain pass approaches, if the driver keeps the peddle in the same position as the car ascends the mountain, the pace of the vehicle will slow and eventually come to a halt. This represents disinflation. Just as the car slows but keeps moving forward inflation remains, but at a slower growth rate. Conversely, if deflation were truly present, the car would stop on the mountain road and then reverse back down the hill. This is not yet evident in the money supply (inflation proxy) compiled by the St. Louis Fed and Shadowstats.com (see Figure 1.1.). PODCAST HERE>>> Continue Reading>>>

Sharing is caring!