In 2011, I was really right. The Federal Reserve was starting its third round of quantitative easing -- QE3, which seemed to be turning into QEInfinity -- and there was no end in sight to the money-printing. Everybody was scared to death of inflation. Furthermore, the budget deficit was, at one point, more than 10% of gross domestic product, and it looked as if the deficits were going to be structural and permanent.
Fast-forward to today. The Fed is tapering quantitative easing. The deficit has collapsed, as new taxes have raised record revenue and the government has not appreciably expanded. Also, incredibly, everyone is now worried about deflation, not inflation.
That includes central banks. Central banks, all of them, are busy trying to create inflation.
Well, central banks usually create inflation when they aren't trying, so I imagine they will be very successful if they actually try. In fact, we are already starting to see some inflation, as I discussed in a previous post. It will be interesting to see how quickly the Fed will react. I predict it will hardly react at all. Fed Chair Janet Yellen has given every indication that she will allow inflation to overshoot significantly while the Fed readies a response.
Gold is impossible to value. People have tried. I will say that gold represents a much more compelling value at $1,300 per ounce than at $1,900 when you consider that every major central bank is out there trying to create inflation. Also consider that, in many developed countries, inflation is rising rapidly.