Stagflation and/or Deflation? Yes!

U.S. spending its way to stagflation

The administration's lack of fiscal restraint is going to result in unprecedented levels of printing by the Fed. Under the current forecast, the U.S. Treasury needs to raise around $4-trillion to finance a $1.5-trillion deficit and to replace Treasury debt that is due to expire in 2010. In the last five years, issues of new Treasury securities have already climbed from a couple hundred billion dollars to $1.5-trillion in 2009, to double that in 2010. The debasement of the dollar that started in 2009 is certain to continue -- and with it inflation will come, starting in 2010.

I'm a believer. Sign me up!

Call that a crisis? Stand by, for the worst is yet to come

As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st-century depression - more akin to Japan's lost decade than the 1840s or 1930s, but nothing like the normal cycles of the postwar era.

...

In the end the euro's fate will be decided by strikes, street protest and car bombs as the primacy of politics returns. I doubt that 2010 will see the denouement but the mood music will be bad enough to knock the euro off its stilts.

The US dollar rally will gather pace. America's economy - though sick - will shine within the even sicker...

I'm a believer. Sign me up!

I was a stagflationist as I read the first article.
I turned into a deflationist as I read the second article.

I just reread the first article and became a stagflationist once more. I then reread the second article and became a deflationist again. This clearly isn't working.

Perhaps there is someway I can read both articles simultaneously? I can't seem to resolve the uncertainty.

Uncertainty principle

In quantum mechanics, the Heisenberg uncertainty principle states that certain pairs of physical properties, like position and momentum, cannot both be known to arbitrary precision. That is, the more precisely one property is known, the less precisely the other can be known.

The most likely outcome to me appears to be a combination of stagflation and deflation. In other words, more of the same. The two 'flations will cancel out as The Great Depression's deflation meets the inflation of the 1970s. That's really all the Fed is attempting to do.

If one were to simply look at the price of toilet paper, one could easily argue that the Fed has been successful so far. Toilet paper's price has risen at a slow, stable, and predictable pace over the last decade. That's in spite of two major stock market crashes and a massive real estate bubble popping.

So why the long face?

I guess it is because The Great Depression's high unemployment will continue to meet the high unemployment of the 1970s. Those two do not cancel out. Sigh.

The Great Depression's stock market will also continue to meet the stock market of the 1970s. Those two do not cancel out either. Neither era was good for stocks. I guess that's why I haven't owned any stocks since 2004.