No surprise with Jean-Claude Trichet keeping rates unchanged this morning, but definitely a surprise to some of the US economic doves who are living in the myopia of the moment that there are no global inflation pressures.
Trichet said 3 things on inflation:
- Inflation is higher than he expected (oil prices cited as leading indicator)
- Global inflation pressures continue to mount and “may increase”
- “Price risks tilted to the upside.”
Now this view is an easy one to have. All you need are live Bloomberg quotes on your analytical machines. Its also a view that can and will change – because prices do. Our views on deflation in 2009 supporting a bullish stock market environment and our current bearish views on US stocks due to inflation are direct outputs of the direction of one factor – price. As prices change, we will.
Piling Debt upon Debt upon Debt to solve for these European liquidity issues will also end in long term inflation. See chapter 12 of Reinhart/Rogoff for empirical data supporting the view that accelerating long term inflation will continue to be the result of a world that’s resorted to printing fiat currencies.
Keith R. McCullough
Chief Executive Officer