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INFLATION? WHAT INFLATION?

Here’s an interesting note via Bondsquawk:

“The yield differential between 10-Year Treasuries and 10-Year Treasury Inflation Protected Securities ended the day at 177 basis points.”

We are in the midst of a household deleveraging in which there is insufficient aggregate demand to generate price inflation or wage inflation. Although there have been countless predictions about the coming high inflation from government policies I still see no signs that there is high inflation on the horizon. QE simply doesn’t have a transmission mechanism by which it can create high inflation and the deficit spending is barely enough to offset the household deleveraging. This leaves the economy is a muddle through environment where we are likely to stagnate with low levels of inflation.  So I have to ask what the fuss is about?   Inflation?  What inflation?

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