Monday, May 11, 2009

Government Bubbles and Inflation

Is the recent stock market rally the beginning of a new bull market? Probably not. Well, what is it then? It is the US government going full blast in attempting to reflate the burst credit bubble.

MIT professor Simon Johnson told the Wall Street Journal this weekend that "the government is reflating the financial bubble." Professor Johnson went on "The over-subsidizing by the government in the financial sector will get us stuck in the same kind of financial bubble that got us into the mess in the first place. Last year, what we saw was a private sector financial bubble."

Johnson says that the government debt bubble is what directly precedes inflation. "The government credit put in the banks makes inflation almost inevitable. It's a recipe for going to hyper-inflation. "

And if anyone has noticed, longer-term interest rates have been moving up briskly lately. The 30 year Treasury bond auction last week was a disaster. Portends of the future???

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