NEW YORK (
) -- The markets are torn between polar opposite schools of thought. There are those who believe we are in a period of intense deflation, which will continue for some time, and there are those who believe that inflation is inevitable and, in fact, is already with us as consumers can attest.
The Fed must be in the deflation camp. Why else would they continue to create $85 billion/month of new and unneeded bank reserves? Several recent academic papers have indicated that the major industrial economies of the world, representing more than 70% of the world's GDP, are so indebted (U.S. Private & Public Debt/GDP: 360%, Europe: 450%, UK: 470%, Japan: 500%) that the world has entered into a period of debt disequilibrium and deleveraging. The annals of history indicate that such periods take an average of 20 years to resolve. Because the indebtedness has actually increased since the financial crisis and Great Recession, this deleveraging cycle may be even longer.
The deflationists believe that the world's economies will continue to falter, and that no matter how much QE the Fed provides, it won't translate into economic growth if there is no ability to consume due to excessive debt loads. In this scenario, the price of gold and other precious metals have likely seen their peaks and may fall even further from current levels.
The second camp belongs to those who see inflation, not only potentially in the future, but currently hurting consumers. The CPI, as produced by the BLS, just isn't realistic for most Americans. In the Oct. 12 issue of
, commodity guru Jim Rogers opined, "The price of nearly everything is going up. We have inflation in India, China, Norway, Australia -- everywhere but the U.S. Bureau of Labor Statistics. I'm telling you they're lying."
In some of his recent daily blog posts, economist David Rosenberg (Gluskin-Sheff) indicated that if the rapid increase in home and auto prices over the past year were used directly in the CPI instead of the massaged data that is used, today's CPI would be north of 4% instead of the 1.5% that BLS publishes.