Reflation from Financial Market Uncertainty

Wall Street Grand is coining the term �reflation� due to the market uncertainty and the constant ying and yang of deflation and inflation pulls on the market. The point is that deflation should - or so we thought - be easy to prevent: just print more money. Printing money is normally a pleasant experience for governments. In fact, the idea that governments have a hard time keeping their hands off the printing press has long been a staple of political economy; dozens of theoretical papers have argued that the temptation to engage in excessive money creation causes an inherent inflationary bias in economies. It is largely to combat that presumed bias that most of the world has accepted the notion that monetary policy should be conducted by an independent central bank, insulated from political influence - and has written into the charters of those central banks that they should seek price stability as their main, often only, goal.

 Yet here we are, with deflation turning out to be a serious problem after all - and with policymakers finding that it is not as easy either to prevent or to reverse as we all thought. Wages are falling home prices are at all time lows and emerging economies are experiencing lower prices. The money printing press is churning out dollars but the credit markets are stalled. Lending is all but nonexistent for the average business owner/individual. But wait we also have inflationary forces at work. The recent rise in Gold and Silver is certainly a long time fundamental hedge against inflation. The consensus view amongst economist is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. U.S. growth is steady but at a slow pace, however, our money supply continues to increase. Price increases in basic staples such as food and health care continue to increase dramatically. Savings rates are declining and investment grade securities are beginning to experience a reduction in investors in favor of commodities. The Bear and The Bull, Deflation vs. Inflation, Euro vs. Dollar point to very concerning economic forces in contention. The result of this �reflation� is again market uncertainty. If the policy makers will not make the tough decisions at some point the market will and it will be very challenging and potentially a very prolonged correction.