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As far as I'm concerned, inflation is a result of the government
monetarizing the debt. If there is no new debt, there is no new debt to
monetarize. Use of new technology in capital formation generally leads
to lower prices. An example would be the move from copper based wire
for communication to fiber optics made from silica. As labor costs
escalate, machines are substituted, leading to lower costs. Competition
combined with lower costs generally leads to lower prices.
If you waatched the state of the union address, you are probably aware
of several spending proposals. Draw your own conclusions.
Bill Bancroft wrote:
> Is there a consensus on this forum regarding the US economy and
> deflation?
> Is our economy now deflationary vs. inflationary?
> Furthermore, if the economy is now deflationary, doesn't that change
> the
> relationship between stocks and bonds?
>
> Here's why I ask: Compare the recent action in the daily chart of the
>
> Dow Jones Industrial Average to the daily chart of the yield on the 30
>
> yr treasury bond.
> They look the same! They both clearly show a bearish
> head-and-shoulders
> pattern that is close to breaking the neckline!
>
> Isn't this relationship consistent with a deflationary economy rather
> than an inflationary one? Anyone familiar with Gibson's paradox? "In
> a
> deflationary enviroment stock prices move inversely to bond prices."
> Are we there now?
>
> Bill Bancroft
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