Fleckenstein declares deflation “dead”Posted: April 14, 2011
I am two months late on this one.
In February, Bill Fleckenstein refuted the notion that inflation is a net positive in “No such thing as good inflation.” He starts by noting how higher prices in commodities are driving inflation expectations upward:
“As unprecedented amounts of liquidity from the Federal Reserve have worked their way through the financial system and into the real world, I believe inflation psychology has changed. People have seen larger price increases in commodities and are resigned to accept them, which will set the stage for additional rounds of price hikes.
Once that psychological shift becomes entrenched, it will be extremely hard to reverse, despite Fed Chairman Ben Bernanke’s stated certainty that he can keep prices under control…”
Fleckenstein goes on to insist that as long as the Federal Reserve is allowed to play free and loose with the dollar, deflation will not happen in America:
“I would like to officially declare the topic of deflation dead. As I have long maintained, we may actually experience deflation if the bond market rebels and takes the printing press away from the Fed. However, in the absence of that, it should be clear by now that deflation is not going to visit the shores of America.”
I made a related point back in October, 2008. Back then I thought we would see elevated inflation levels no later than 2010. Regardless, Fleckenstein provides to a great reminder that inflation is, and has always been, the threat once the Federal Reserve started throwing freshly printed bills at our economic calamities.