Why the Fed has no other alternative but to print money! (page 3 of 3)

But will it help? I doubt it since further money printing is likely to result in consumer price inflation exceeding personal income gains. Already now hourly earnings are declining in real terms.

US inflation, weak economy

So, the next time, the Fed embarks on its usual money printing exercise, consumer price inflation accompanied by renewed dollar weakness is likely to both exceed asset inflation - especially in the housing sector - and income gains.

This should ensure that the forthcoming recession will be characterized by consumer price inflation and simultaneous economic weakness. Maybe the rise in the gold price, which admittedly could be interrupted temporarily by profit taking, does begin to discount this unpleasant scenario.

Needless to say that under this scenario long term bonds would be about the worst possible investment! I may add that when long term interest rates are below the rate on nominal GDP growth, which was the case in the 1960s and 1970s, consumer price inflation accelerates whereas when interest rates are above the rate of nominal GDP growth (1980-2000) consumer price inflation decelerates (disinflation).

For investments the following should be clear: when consumer price inflation accelerates it leads to poorly performing financial assets - especially bonds. However, a whiff of inflation would be good for Japanese equities as it would move institutional and private money parked in bonds and deposits into equities and real estate.