|
April 22, 2009
Money & Music
Written by Jeff Thredgold, CSP, President, Thredgold Economic Associates
We are very pleased to announce a new video and web site for our Money & Music program. My wife, entertainer and recording artist Lynnette Thredgold, and I have presented this program many times during the past few years and would love to present it at your next event.
Take a look at our website…www.moneyandmusic.net. Watch videos, listen to music, read reviews, and learn more about this unique offering that audiences are raving about.
Zip…Nada…for the Moment
U.S. consumer inflation continues to be absent, still impacted by the sharp decline in energy costs of the past nine months. Where we go from here remains one of the most critical questions on the minds of financial market players.
The Consumer Price Index (CPI), easily the most followed of all inflation measures, declined 0.1% in March 2009, coming in below expectations. More importantly, the CPI has now declined 0.4% during the latest 12-month period, the first 12-month decline in consumer inflation since 1955…a period of 54 years.
Two Contrasting Viewpoints…Plus a Middle Road
Rampant Inflation
Highly vocal critics of the Federal Reserve and the Obama Administration argue passionately that the current mix of monetary and fiscal policy is prone to disaster, i.e. rampant inflation. They suggest that the more than doubling of the Fed’s balance sheet from roughly $875 billion before the financial crisis to more than $2 trillion now…done with newly created money…is the height of irresponsibility.
Adding insult to injury in the eyes of the inflation wary are the unprecedented budget deficits to be run this year and for years to come. The inflation wary suggest that the ownership of gold, other commodities, and real estate are the preferred places to keep one’s financial assets.
A Run of Deflation
The other vocal camp suggests that one need merely look at the Japanese example in the early 1990s for a whiff of what is to come. The bursting of Japan’s real estate and asset bubble roughly 17 years ago led to a serious eight-year battle with the deflation disease, i.e. declining prices for assets of all types.
While declining prices for homes and land and commercial real estate and stock prices and manufactured goods and services might sound like a good thing, it is quickly followed by declining wages and declining incomes. Significant amounts of spending are also delayed as people assume that prices will be lower if they wait longer.
Is that not what is happening in dozens of residential real estate markets today? Potential homebuyers and investors are excited about much greater values in markets today, where home prices have fallen 30%…40%…50%…, but aren’t many waiting for even further declines before they make an offer?
The deflation camp points to declining home prices; declining values of commercial real estate in many, many markets; major slack in labor markets; and global recession as a menu for deflation in coming years. Their desired investment portfolio favors fixed-rate notes and bonds, especially those issued by the U.S. Government and highly rated companies.
In the Middle
The third view is that we will muddle our way through in regard to inflation pressures in coming years. The Fed will shrink its balance sheet back to more normal levels when financial flows improve by selling assets it has been buying. The process is not that difficult.
In addition, bond investors will remain so inflation sensitive that they will force the Fed’s hand, if necessary, to tighten monetary policy significantly in order to keep inflation at bay.
We have been here before during the late ’70s and early ’80s. The Fed responded at that time with a major monetary tightening to fight off double-digit inflation that engulfed the economy. The middle road, worst case scenario suggests that the current massive Fed ease of 2008/2009 could be followed in 3-5 years by a major tightening to corral inflation pressures…
…the only sure thing is that inflation will not be allowed to get out of control
• Email this article to a friend
• Learn about econAmerica, Jeff’s latest book
|
|
Subscribe to the Tea Leaf
Like what you just read? Have Jeff Thredgold’s Tea Leaf emailed to you free each week. Subscribe today.
|
|
|
“Tea”ser
Before you criticize someone, walk a mile in his shoes. That way if he gets angry, he’ll be a mile away and barefoot.
“Tea”stimonial
“The comments and feedback from the group were the best I have seen to date. I am proud of how good you made our organization look by delivering exactly what you promised—an excellent, memorable, informative, and entertaining presentation.”
• More testimonials
Invite Jeff Thredgold to speak at your next conference, meeting, or client function
If you like the Tea Leaf, you’ll love Jeff Thredgold’s live presentations. Jeff takes your audience on a timely, engaging, and entertaining tour of the U.S. economy and financial markets. Debunking some of today’s most common economic myths, he offers a clear picture of how the American economy is really performing and what that means for the future of your finances.
• ***Watch Jeff Thredgold’s new demo video.***
• Download more information that you can e-mail to other decision makers.
• See Jeff Thredgold’s speaking calendar.
• Tell us about your event using our online form and we will contact you. Or, is there an individual in your organization you would like us to contact?
• Give us a call at 1-888-THREDGOLD (847-3346) to ask about Jeff’s availability and pricing for your event, or for any other information.
|
