[quote=Rich Toscano]
The counterargument would be that Japan was in deflation and we too could go into a 20 year deflation, but for reasons I have discussed many times and in great depth, there is no chance that this will happen. No chance. And I think the 3% inflation figure used in the above calculation will almost certainly prove to be significantly low.
Shiller has done some excellent and important work on the topic of valuations and of market booms and busts, but he has his areas he focuses on and areas he doesn’t. Notably, he pays virtually no attention to the imbalances caused by our coming-apart-at-the-seams monetary system (except inasmuch as they have influenced the historical CPI, which to his credit he accounts for). Only by ignoring that topic could he predict a 20 year decline in the nominal price of housing. This blind spot is also imho why he is seeing bubbles where there are none (oil and gold) while ignoring the actual bubble (Treasuries — not really a greed-driven bubble in the traditional sense, but worlds closer to being an actual bubble than oil or gold).[/quote]
This brings up a question I have for you, Rich.
If I’m not mistaken (and I easily could be) a lot of your predictions are based on the idea that helicopter Ben et al will take extreme measures to prevent deflation, regardless of the risk to the dollar. To me, it seems as though – I won’t say the political winds are changing, but – there is at least a whiff of “the deficit/debt is our biggest problem, we must do everything we can to fix it” out there. I suppose it could just be talk from politicians pandering to their constituents. But it seems to be picking up momentum.
One theory says that, at some point inflation will take hold and spiral away before we can catch it. Another says that deflation could do the same thing. Do you think there’s a meaningful chance that this “fix the debt” idea will get enough support that our politicians will stop throwing printed money at the situation long enough for deflation to actually take hold? Or at least to prevent serious inflation?
