I recently saw the stat that the government's total debt auctions have reached $7 trillion for the fiscal year 2009. We know that most of the "stimulus" programs have not been ramped up and unleashed on us yet, with politicians trying to time their "positive" effects for election time next year. We also know that there is over $700 billion worth of bank excess reserves sitting in wait. I know the Fed just said they do not plan to raise interest rates anytime soon, but when will the banks want to start taking some risk again with all the excess reserves they have?
My feeling is that banks will sit on the reserves for another year (or two) while they wait for the all the Alt-A and Option-ARM mortagage adjustments to pan out (lots of defaults coming?), so excess reserves will not be hitting the market in the near term, in my opinion. I do not know the schedule of government program roll-outs, so I do not know how much money is going to hit the market when. If anyone has links to this information, it would be greatly appreciated.
While I expect to be paying $8/gallon for gasoline within seven years and the words "hyper" and "inflation" to be inseparable, for the short term, I am on board with the deflation trade. There is still over $6 trillion worth of treasury fundraising to be touched and another almost $1 trillion of excess reserves, in this country alone.
When do you see this translating into large scale price inflation and do you see the Dow going past 15,000, or will stagflation sit in before another artificial boom can emerge?