Tuesday, September 05, 2006

Inflation or deflation?

On one thing, we contrarians agree: The U.S. economy can't continue stumbling along as it has indefinitely. Something has to give; there are too many structural imbalances. But how will it play out? Will it be inflationary or deflationary? I'm just a humble journalist (albeit one of the few who recognizes reality), but Doug Casey states the inflationary case pretty convincingly in his free biweekly e-letter What We Now Know:

Given the choice between (A) a dead housing market and scorched-earth depression in the U.S and (B) a collapsing currency, which at least has the virtue of reducing the real cost of paying off all those Treasury bonds, I’m forced to believe the U.S. government will choose (B) and sacrifice the dollar.

But if anyone sees the opposing view stated equally well, by all means let me know!

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