Replies

M3 chart doesn’t reflect productivity nor does it account for old money being removed from the system. There are many things cheaper now than a couple years ago, namely 99% of electronics, most clothing, housing, etc. Even prescription drugs are now flat and if you know where to look are cheaper than in many years. Energy isn’t up much in the last year (although it’s up a lot from its all time lows a decade ago). Food started to creep up but has slowed down and probably will continue to (The grocery chain I work for has similar inflation #s to the PPI/CPI for Food). I just don’t see this ‘rampant’ inflation at the moment that some of you claim to see everywhere except in commodities which do not appear to be spilling over into other prices.

You see the inflation in the value of the dollar. As it falls the interest rates paid to foreign buyers will have to increase, or the treasury issues will remain unsold. That'll raise interest rates everywhere, including adjustable mortgages, and that'll trigger defaults, increase the number of unsold homes (about a 10-month supply now), which will elongate the depth of that sector's decline. More CDOs backed by MBSs will discover losses and face call margins. When cash is tight people and businesses cut back. Durables goods decline this week indicated that. And the latest GDP numbers were for Q2 - the liquidity issues started in Q3. Personal spending did go up 0.6% in August, but that tends to happen with back to school. Unemployment tends to go down then because summer workers vanish.

We'll see how consumer spending does this holiday season.