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Why Inflation Will Stay Away in the Immediate Years Ahead

Some economic observers say inflation is just around the corner due to the Fed's stimulus efforts.

However, an opinion writer for The Hill says there's a big reason why inflation is not in the cards anytime soon.

Here's an excerpt from a Jan. 20 article:

Will the U.S. economy experience inflation or deflation in the years ahead? That is the same key question economists were grappling with after the Lehman bankruptcy in 2009, when the U.S. last embarked on highly unorthodox monetary and fiscal policies at a time of high unemployment.

In the decade following the large 2009 Obama fiscal stimulus package and then-Federal Reserve Chairman Ben Bernanke's bold experimentation with massive bond buying, inflation did not materialize. In fact, over the past 10 years, the Federal Reserve has continued to fret about not being able to get inflation to rise to its 2 percent target. This was the case because large gaps continued to characterize output and labor markets, despite the unprecedented amount of peace-time fiscal stimulus and Fed money printing.

In the period ahead, it is very likely that inflation will once again not materialize to any large degree, despite an even greater amount of monetary and fiscal policy experimentation than occurred in 2009. This time around, it will not occur because of the likely bursting of today's "everything bubble" in the world's asset and credit markets. That bursting will be caused by rising interest rates that will be brought on by today's unprecedented budget policy easing.

Speaking of a financial "bubble," the January Elliott Wave Financial Forecast, a monthly publication which focuses on major U.S. financial markets, mentioned a sign of an "imminent" bursting.

Here's an excerpt:

The current IPO boom features a whole genre of offerings that didn't even exist at the market's top in 2000: the Special Purpose Acquisition Vehicle. SPACs, a.k.a. blind pools, raise money to invest in as-yet unidentified entities. Something similar happened at the end of the last Grand Supercycle bull market in 1720. In Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay told of an offering "for carrying on an undertaking of great advantage, but nobody is to know what it is." The purpose of a SPAC is essentially the same: "to avoid extensive disclosures." For a full rundown on their unique qualities, see the June, August and September issues of EWFF. In October, EWFF added that their popularity "places the current IPO craze head and shoulders above all prior IPO binges in terms of cavalier indifference to the undesignated use for the capital being raised." In 2020, funds raised by SPACs totaled $80 billion, more than in all prior years combined. "That's pretty bubbly stuff," says a global macro strategist with a Wall Street research house. In one more sign of an imminent bubble burst, celebrity investors are now flocking to SPACs. Here's the notice from Barron's on December 13:

Baseball executive Billy Beane of Moneyball fame, former astronaut Scott Kelly, 15-time NBA All-Star Shaquille O'Neal, and former Speaker of the House Paul Ryan have one thing in common: They are all involved in SPACs, special purpose acquisition companies, now the rage on Wall Street.

It's further enlightening to see Shaquille O'Neal's name in the mix. In July of last year, EWFF showed his picture on the cover of the infamous September 2000 Money magazine issued titled "Jocks Know Stocks." Stocks then knocked jocks as well as all investors in a bear market that ended in October 2002. The current equity culture is every bit as effervescent as it was in 2000. Barbra Streisand is another of that era's celebrity stock pickers who is back at it. A recent New York Times profile reveals that stocks are "another of Streisand's passions. She wakes up most mornings at 6:30 a.m. to check the opening in New York. If she finds the action 'interesting,' she trades." In one of her more famous musical numbers, Streisand asks if she would "do it all again" given the chance. Apparently, the answer is yes, to possibly even more heartbreaking results. "What's too painful to remember... We simply choose to forget."