Inflation versus Deflation

From Chris Martenson at Chrismartenson.com:

"Inflation correlates poorly with growth in the monetary base, making that statistic relatively useless as a predictor of inflation. However, inflation correlates extremely well with growth in government spending, meaning that we'd do well to track that statistic closely.

The current economic crisis is being fought tooth and nail by a determined Federal Reserve (in the role of the "enabler") and an equally-determined US government (in the role of the heavy-lifter, assuming all the lion's share of the long-term debt and risk). Together, these institutions have virtually consigned future generations to the enormous challenge of wrestling with bloated budgets in desperate need of trimming, further compounded by coinciding with periods of high inflation.

If pressed, I would explain that the policy responses to this crisis are rooted in a cultural mindset of 'kicking the can down the road.' Instead of dealing with the pain caused by past excesses in a forthright and honest manner, preference has been demonstrated for piling on additional liabilities and pushing them ahead at the expense of the future.

If/when even these 'heroic' measures fail, we will discover not only that we've made things far worse than they otherwise would have been, but also that we wasted valuable time, money and political capital vainly attempting to rescue something that not only could not be preserved, but was not even worth preserving.

It is impossible to predict exactly when inflation will hit. It may not descend until a few years from now, or its impact might be felt before the end of the year. Even if inflation is a few years away, now is the time to begin preparing yourself, your holdings, and your portfolio for inflation's arrival. When it comes to preserving purchasing power in a high inflation environment, not all assets are created equally.Business owners, it is time to begin thinking about how high inflation will impact your operations. It will be difficult for many business owners to balance operational cash flows with employees' need for increased salaries to mitigate inflation's impact.

Finally, given the fact that any possible economic recovery will run into the twin walls of outstanding debt and energy limitations, I must conclude that the probability of destructive inflation (or stagflation) far outweighs the likelihood of benign inflation."