I have to disagree with this guy. I think Ben's frustration stems from the fact that he CAN'T generate inflation, at least not the kind he wants, ie. financial assets and housing. It isn't working because banks aren't lending. Instead they are using the new money to shore up reserves in anticipation of further write-downs.

The inflation we are seeing is coming from increasing global demand for increasingly scarce resources (and speculation in same) and is, for the Fed's purposes, a hindrance, not a help because it hurts both the household and corporate bottom line, which doesn't exactly encourage new spending.

Consider the state of the housing market, not just in the USA, but in Europe, Japan and now China. A lot of upsidedown borrowers out there - a majority even - and those that can buy are sitting it out waiting for even lower prices. How do you get inflation from that?

Then consider employment. Do people spend, spend, spend, when a pink slip may be just around the corner? And in that environment, how do you chase rising prices with rising wage demands, a la 70's? You can't, can you? Look what just happened at EMD/CAT. Those jobs are gone. No ipods under their next Christmas tree.

The kind of inflation Ben is looking for is what got us into this mess in the first place: thirty years of credit expansion driving ever rising home and stock prices, ie. the "Wealth Effect" that tricked people into believing they could afford stuff they really couldn't. That's over now, and it ain't coming back - at least not in the time-frame Ben wants.

So, where does that leave us? Well, I suspect what we're seeing today is a transition from inflation (1981-2008) to deflation (2008 onward) including a bear market rally of a size consistent with the previous bull. If I'm right, and history is any guide, the bear should run for about half the duration of the previous bull - 13 years, give or take. So, if 2008 was the turn, you're looking at 2021 before a new bull can begin. Not exactly the time frame Ben is looking for.

Of course we're all familiar with Boomer demographics, which don't exactly help Ben's thesis either.

So why is gold going up if it's not inflation that's driving it? Well, who in their right mind would sell gold right now? It's been in a solid uptrend for over 10 years - you smack it down, it pops right back up, like whack-a-mole. That alone is self-reinforcing. Add to that you now have central banks buying, not because of inflation per se, but because of uncertainty surrounding the dollar reserve system and sovereign debt. That leaves mine output as the sole source of new supply, and we all know the story there.

Anyway, that's just some thoughts I had. I'm not betting the farm on any of it - just throwing it out for discussion.

ebear