Deflation is another case of how to lie with statistics, a scheme that this government and the fed has been particularly adept. One should understand that the inflation statistics include the cost of
which last month was down.7 of 1%. For most of the home owners and renters whose out of pocket costs did not decrease, this had no effect.
On the other hand, the cost of food, gas, medical, education and taxes were up. This represents real inflation to most Americans. If the cost of housing were left out of the calculation, inflation would be on the order of 5 to 6% a year.
The real purpose of QE2 is, in my opinion to keep the cost of borrowing down. Interest on the national debt is already about half of tax revenue. Should the cost of borrowing double, the effect would be catastrophic. The alternatives going forward are to print money which will reduce the purchasing power of the dollar.
The price of gold is going up not because mom and pop are buying gold, but because large hedge funds and big investors are buying gold.
Looks like we very well may suffer from a long bout of stagflation, however this will depend on the type of leadership we have in Washington and at the Federal Reserve. Corporate leaders will make the difference in the end due to the large unprecedented amounts of cash they are sitting on and only looking at Washington as a threat in which could jeapordize the very implementation of this vital capital to create jobs and new business lines in which to foster growth and yes capitalism. Think of stagflation as an artificial condition caused by political uncertainty in Washington. One hiccup in the middle east oil supply chain and we will have hyperinflation.