Deflation? Don't Be Ridiculous.

Not in any significant sense. There will be inflation. Why?

1) The Dollar is a bill of credit- a debt instrument. It is a note paying 0% interest, collateralized mostly by Treasuries. To the Fed, an FRN (a dollar) is a liability backed on the accounting ledger by Treasury "assets". Treasuries are going down. This is a certainty. It may be slowly over 5 years or it may be rapidly over 5 hours. I'm guessing sooner rather than later. As dollars are backed by Treasuries, as Treasuries go, so will go the dollar. It will start with Japan selling off.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/...

2) Inflation is a function of M1 growth or Monetary Base (less reserves on deposit) growth. It has not grown recently, hence, no inflation. Freshly printed dollars have been deposited with the Fed (for now). They will leak out. The Fed will have to raise rates to keep those dollars out of the economy. A special "Fed Deposit Rate" higher than the market rate and only for Wall Street Banks may be tried. It will fail. It is politically untenable.

http://www.lewrockwell.com/north/north798.html

"Reverse Repos" are the new Fed scam...er....tool to remove excess liquidity. It goes like this: The Fed prints $1 Trillion, gives it to Citi for mortgages at $1 for $1 even thought the mortgages are worth $.67. Then Citi turns around and uses those dollars to buy Treasuries back from the Fed with a guarantee byt the Fed to buy them back at a higher rate (thus guaranteeing a higher interest rate). It's just a shell game and addresses corpulent money supply by obfuscating a rate hike.

3) The Fed is the banker's bank. They will not let all the big banks fail. They will print $50 Quadrillion dollars if necessary. If the Fed tries to tighten aka Volcker, they will bankrupt the US Government. A 21% interest rate = $2.4 Trillion interest expense ALONE for big Brother. There will be no Volcker 2.0 because a 21% interest rate = the government takes over the Central Bank and revs up the digital analogues (printing presses).

3.1) If the Fed raises rates any significant amount they will scuttle the recent "carry trade" stock market rally. Stocks are priced today as net future cash flows discounted to present value by (1+cost of capital)^n. Cost of capital ~ 0% for banks today making even the puniest of dividends valuable. Jack that cost of capital rate to 4% and the NPV sinks like a stone. The Fed cannot raise rates without scuttling the market. The S&P is priced at something like 75Xs trailing earnings. 80% of Goldman Sach's income comes from this 0% carry trade. Raising rates will destroy this income stream. The Banks own the Fed. They will not like this.

4) The US owes $75 Trillion. Will they tax it? Impossible. Will they borrow it? Impossible. There are only 2 solutions: 1) monetize it and 2) repudiate it. Repudiation is politically impossible but practically likely. Monetizing it is a disaster but politically practical.

Past Deflations:

But what about the 1930s you ask?

What about them? The US had a gold standard then. It took 5 years to double the monetary base. It took Bernanke 5 months! Ponzi-banks were allowed to collapse in the 1930s taking their fractionally multiplied Madoff dollars down to the never-after with them. That will not happen today. We have FDIC and Helicopter Ben with an infinite supply of dollars to ride in to save them.

But what about Japan in the 1990s?

There was no serious deflation in consumer prices in Japan. One must not confuse a collapse of a speculative bubble in real estate (or tech stocks, or South Sea Trading Companies or tulip bulbs) with skyrocketing consumer staples prices.

http://www.safehaven.com/article-15478.htm

We are going into mass-inflation. You can try to play technical trades, consult astrologers, and read goat entrails all you like. Time your "key reversals" and consult your trailing 100 day moving averages and your "Bollinger Bands" as well. Good luck. There may even be some merit in reading tarot cards...er...uh...technical charts. But I am prepping for the next decade, not the next week.

Finance yourself with fixed rate debt, wind down cash positions, invest in tangible things, stay away from bonds, liquidate (take a loan) on you 401k before Obama nationalizes it.

http://www.sharedprosperity.org/bp204/bp204.pdf

Hold on tight. It's gonna be a wild ride.