Sunday, March 22, 2009

Inflation or Deflation?

Puru Saxena, Editor of Money Matters, is a frequent guest on Jim Puplava's radio show. He just posted an interesting article regarding the inflation vs deflation forecast. I believe that he's "dead on". An excerpt:

"It is my firm belief that over the years ahead, the US and all other debt-laden nations in the West will engage in massive money-creation in order to debase their currencies and dilute the purchasing power of paper money. Remember, monetary inflation is a debtor’s best friend as it makes the debt easier to service and repay. On the other hand, monetary inflation goes against the interests of savers and creditors. Given the fact that most of the ‘developed’ nations are up to their eyeballs in debt, you don’t have to be a genius to figure out that monetary inflation is our future. At present, the global economy is dealing with deflationary forces due to credit contraction in the private-sector. However, even now, total credit in the US is expanding due to rampant borrowing by the US government. So, I don’t expect deflation to take hold; rather, I anticipate accelerating inflation which has always led to rising asset and consumer prices."

"Now that we have established that monetary inflation is our future, let us examine which currencies and assets will maintain their purchasing power. If history is any guide, nations which engage in monetary inflation always diminish the purchasing power of their currency. So, in the years ahead, we can expect currencies in the West to depreciate in terms of purchasing power but the trouble is that none of the fundamentally sound nations want a strong currency either! As the world engages in competitive currency devaluations, I expect all the currencies in the world to lose significant purchasing power against hard assets. Therefore, in the years ahead, precious metals and other commodities with intrinsic value should appreciate considerably. Even the values of fundamentally sound businesses with clean balance-sheets should sky-rocket as a result of inflation."

The entire article:

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