Wednesday, 15 July 2009

Inflation or Deflation - You Decide

This blog is a nascent trend relating to the economy. With unprescedented bank bail outs and quantitative easing (effectively printing money) we are in uncharted waters. There is anxiety from many leading financial journalists, practitioners and academics alike who are unsure of our destiny.

Let us start with some financial experts who foretold the crisis. Dr Nassim Taleb, author of Black Swan forecast a crash, Professor Nouriel Roubini also forecasted economic collapse. However one of the most accurate forecasters was Peter Schiff who argued his case when all around him were arguing otherwise. Have a look at these clips dating back to mid 2006. Many leading experts including Professor Arthur Laffer, the father of modern supply side economics and former advisor to Ronald Reagan ignored his warnings. Have a look and make your own mind up.

Peter Schiff although prophetic is now arguing vehemently that high inflation is around the corner. UK economic expert Liam Halligan also agrees with him and higher rate fixed rate mortgages deals support this. A critical mass is building of worries about hyper inflation, public sector cuts and higher interest rates.

But hold your horses! Watch this heated debate between Liam Halligan and Hugh Hendry the CIO of Eclectica Asset Management

Halligan warns that QE has resulted in the creation of Zombie Banks in the US and Zombie Banks in the UK. For more information on Zombie Banks check out the academic paper by Edward Kane. For casual surfers look at the wikipedia link. Hendry agrees with Halligan on the key issues but they differ on inflation/deflation.

Hugh Hendry sits in the deflation camp and on first impressions he seems to be on the wrong side of the argument. However, Mr. Hendry a noted contrarian has been right on the key issues. His hedge fund made superior gains whilst others lost their shirts. Watch his interview with award winning journalist Dr Gillian Tett from

Hopefully this will give you a better understanding and you can draw your own conclusions.