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Friday, December 31, 2010

Future inflation news.

Jeff Opdyke

"This will be the year for Japan because of what’s happening inside the halls of the William McChesney Martin Building, on the corner of 20th and C Streets, NW, Washington, D.C. That’s the home of the Federal Reserve.

In the next 12 months, the Japanese stock market will get a HUGE boost from the Fed’s never ending quantitative easing. With the unlimited amount of dollars Mr. Bernanke is clearly willing to create, the Fed is obviously trying to stimulate inflation here at home. In fact, Mr. Bernanke recently said the Fed is essentially aiming for annual inflation in the 2% range.

I’m very confident that the Fed will succeed in that quest.

But tinkering with an economy isn’t a precise recipe. It’s more of an art, and the Fed governors have never been particularly artistic. So I’ll go out on a limb and say that their target of a 2% inflation rate is probably closer to the floor than it is the ceiling.

When the Fed governors realize they’ve “over-stimulated” the economy, they will have to correct their blunder by raising interest rates to cool things down.

As a result, this will widen the spread between U.S. and Japanese interest rates. And since money always flows toward the biggest yields. Investors will sell the yen and buy U.S. dollars.

Thus, as inflation sets foot upon American shores in 2011, [the Japanese] currency on the far side of the Pacific will begin to weaken."

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That will be good news for Japan. Their exports will increase.

And the whole episode is bad news for the USA. If we don't correct our basic economic problem of production, the malaise will linger.

Our problem is pointless environmental regulation governmental micromanagement, based on poor understanding of the environment; hyperactive occupational safety regulation, based on the notion that worker are stupid about their own safety; and the crying need for taxes an overspending government has. Seems they lavished too many gifts on their buddies in their rush to corruption. Now we have to pay the piper.

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Best wishes for your New Year.

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