Deflation Now, Inflation Later

Well the decrease in the cost of commodities especially oil has been one of the silver linings on the economic cloud and so far costs have been contained, but with 1 trillion dollar deficits as far as the eye can see and the Federal Reserve keeping the rate at an all time low the risk in the future. If this keeps up is it any wonder China is looking for an alternate to the dollar.

The US last week showed its first signs of deflation for 55 years, prompting inevitable fears of further deflation in the future. Yet the primary reason for the negative rate of US inflation is the dramatic 30 per cent fall of commodity prices. That will not happen again. Moreover, excluding food and energy, consumer prices are up 1.8 per cent from a year ago. That is the good news: the outlook for the longer term is more ominous.

The unprecedented explosion of the US fiscal deficit raises the spectre of high future inflation. According to the Congressional Budget Office, the president’s budget implies a fiscal deficit of 13 per cent of gross domestic product in 2009 and nearly 10 per cent in 2010. Even with a strong economic recovery, the ratio of government debt to GDP would double to 80 per cent in the next 10 years.

Either way Gold is still expensive and the fact that the Obama admin is committed to higher energy prices is hardly a good sign. As for Obama, the president started with a budget not based real economic numbers, that wants to raise taxes on all. One that senator Gregg just pummeled him over, and that is just the beginning. In addition if Cap and Trade is not going to be part of the budget, that eliminates another revenue stream the President had factored in. By the way blaming everyone else while "calling for a new era of responsibility" is getting tedious.

The CBO Projections:

Total Deficit or Surplus (Percentage of GDP)

What make believe Talking Points!

WASHINGTON (CNN) -- President Obama returned to Washington on Sunday night with his eye back on his domestic agenda and a plan to save government money.

Give me a break, you have a $3.67 trillion but you are going to cut 100 million dollars from it so you can pretend to be fiscally responsible.