davelj,
While what you said is very reasonable, there could be equally reasonable alternative outlook on the inflation front. Gov stats do understate inflation, but some of that (such as owner-rent) is only deferred and may continue to go up even as housing deflate. Meanwhile high oil price has probably not nearly sept into the core inflation yet. While oil price may not rise much in real terms it may continue to rise in USD if USD continues its depreciation against other currencies, at least that is the intention of OPEC.
What is interesting is that even when the Fed officials are still voicing concerns on inflation outlook, the Fed watchers are poohpoohing these concerns. But their bets are biased: being right in calling Fed turning earns a lot of brownie points but being wrong won’t even get a slap on the wrist. For the rest of us it is probably safer to follow Fed literally than to bet agaisnt them.
The ultimate resolution to this mess is a big drop in the value of homes, stocks, MBS’, and corporate debt, here and worldwide. This can happen quickly, so we can get on with our lives. Or, this can happen slowly, as the Fed and other central banks try to forestall the inevitable (see Japan in the ’90s and the U.S. in the ’30s).
It will be very painful, when folks ultimately see the big drops in the value of their homes, savings, and investments. It will be painful when they realize that they will have to work until they’re 70-75, live frugally, and move in with their kids and grandkids to save money. But, it’s salvageable.
jg, in regard to your previous comment that “Please tell me why you don’t think those dollars will come out in into circulation, giving us big time inflation”, have I explained it well enough now to show you that this money is not on ice, but indeed in circulation and powering this credit bubble?
i sometimes feel that the oversupply of dollars has inflated asset values in USA. Sometimes we might be better off buying overpriced homes. I am getting slaughtered keeping money as cash. I did okay this year investing in foreign stock markets.
if you have a stable or declining population you do not have to create as many jobs as America needs to. They have large investments in foreign countries that can sustain their lifestyle.
