Inflation? Don't Hold Your Breath
With the Federal Government throwing nearly $7 trillion at the credit markets to try and ease the pain of the financial meltdown, many are beginning to worry that we're on the verge of runaway inflation. However, at least three headlines we saw this morning suggest that the prospect of inflation may be a lot further off the horizon than most people think.
"AK Steel To Cut Pay Of Salaried Employees 5% Indefinitely" - CNN Money
"U.A.W. Makes Concessions in Bid to Help Automakers" - NYT
"Trucking Firm YRC, Union Set Tentative 10% Wage Cut" - WSJ
When was the last time you heard about a company cutting salaries across the board, or a union agreeing to a pay cut?
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There is too much being added to the monetary base without the Fed cleaning up excess liquidity. There is no way this can not lead to inflation. Companies are cutting pay in order to keep people at their jobs. Either everyone works for less, or fewer people work for the same/more. It doesn't mean prices will not rise.
Posted by: Adam | December 04, 2008 at 10:33 AM
Stagflation baby!
Posted by: Greg Feirman | December 04, 2008 at 12:21 PM
Sure those headlines indicate we are in deflation . . . for now. The government pumping money at warp speed will eventually be able to inflate economy back up. Then watch out inflation!
Kevin
www.bullinachinamarket.com
Posted by: Kevin | December 04, 2008 at 03:37 PM
"When was the last time you heard about a company cutting salaries across the board, or a union agreeing to a pay cut?"
It was, I think, 1921 when the victorious powers imposed vicious sanctions on Wiemar Germany. Within a couple years, people were hauling their money around in wheel barrows.
And that is exactly where we are heading. Your data points entirely miss the dynamic at work here...
Posted by: Tom Chechatka | December 04, 2008 at 11:41 PM