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Napanee, Ontario | deflation means they're contracting the money supply. The opposite is still happening. The dollar gaining strength here is the rearranging deck chairs on the titanic analogy. USD is gaining strength because ECB came out in last couple weeks with a new round of stimulus to smash the Euro and the fallout is cover in the USD - for now.
But if money is printed in nearly every major currency, that is by definition, inflation. They are inflating the money supply irrespective of increases in asset quantities or economic growth.
Sure, we will see blips on the radar, and there is some real funky stuff going on in the gold market that I will not bother discussing here, but just look around: Dow 17000, S&P over 2000, bonds at record highs, land, gold, .....derivative market ballooning to new highs every day - this is where the money is going. These are inflated prices.
Banks on the receiving end of all this liquidity aren't going out to Wal-Mart and GMC dealerships with the money, that's why the inflation isn't showing up.
If they crank rates, the bedrock of the financial system, sovereign bonds, ie - the risk free rates, aren't risk free anymore. Gov't bonds will become worthless, and when that happens, it's a dash to the exits. There would be a massive crack -up boom as people flood out of nominal paper assets into tangibles. Central banks can obviously understand this - remember greek bonds at 24%? Who was buying them? No one. Once the rate passes the 'serviceable' threshold, the market stops bidding. In fact, the market had been leaving the party on government bonds for the last 5 years... hence why we have to have central banks buying them now.
These low rates are the linchpin holding this whole charade together, the world over. Yes there is a finite period of time to this strategy, but they aren't going to voluntarily destroy the world financial system by pulling the pin. They will do whatever it takes to keep the government debts serviceable, so that the risk free rate stays risk free and the world economy can keep on turning.
Edited by OldMcdonald 9/19/2014 08:46
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Lot of really good market predictions on here
