Dragons and Other Fairy Tales - Up and Down Wall Street Daily - R. Forsyth - Barrons.com

Dragons and Other Fairy Tales - Up and Down Wall Street Daily - R. Forsyth - Barrons.com:

Some say that there is nothing to worry about with inflation as incomes will keep up?

"What a great many people are concerned about is that there income is 'not' keeping up with the cost of things.

Which, of course, makes sense when the economy is not keeping up with the level of either (or both) capital formation or capital investment.

This can take the form of too much consumption (i.e. social redistribution) or excess allocation of societal resources to non-producers (read: excessive public and union retirement packages - see article on LA public unions effectively causing taxpayers to fund 2 sets of civil servants, one working and one retired) or lack of rewards to producers (read: taxes on investment capital and equity).

The United States is not self-sufficient in all materials (read: oil, etc.), so the value of the dollar clearly impacts some of the underlying cost structure. And, as seen in lots of industries, the way to keep a lid on prices is to reduce the allocation to labor - i.e. wages don't keep up."


Other people suggest that if people had a legitimate concern about inflation, we'd see hoarding?

People may also not be hoarding because their credit lines are tapped out and they're unemployed.

Back in the 70's people leveraged up into real estate. But, that was after inflation got going.

Today the driver could be the combination of anti-business government policies with huge credit demands from government going into socially redistributive consumption?

Clearly, the country and investors haven't made up their minds. However, there was an interesting news note in December on the Asian central banks likely to decide by April 2010 about whether to continue resisting the falling dollar by printing their own money and using it to buy Treasuries.

If Randy is right that US investors will be using their money to buy treasuries, it certainly doesn't seem very positive for investment of capital into creating new jobs in the USA. After all, the government borrowing isn't going into infrastructure or investment, it's going into current consumption.