Thanks Arraya. I agree with much of what you say. Some of it comes down to speculation; eg you think that there is a line the Fed won’t cross, whereas I speculate that the Fed WOULD cross that line if the alternative were a multi-year deflationary spiral. But I can respect that people will naturally have different opinions of how far the Fed and govt will push things… I just happen to be on the side of the spectrum that thinks that they will fight deflation at all costs by any means necessary.
One thing I will note though is that while wages are down, if you include government handouts in the picture, personal income has actually grown all along. Consider this chart from the excellent clearonmoney.com site:
Might the government handouts slow down? Sure, maybe (though I personally speculate that they will not do so as long as there is a perceived deflation threat). And are people less willing to spend that money? Yes, for as long as they consider cash a safe haven. So I’m not saying this is the only factor, by any means. However, it does demonstrate the reality that stimulative government policy can, and has succeeded in, growing personal incomes and putting money into people’s hands.
That said, I agree that there are deflationary forces at work right now and the timing of outcomes is as inscrutable as ever.
I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.
