for what it's worth - 'The Bond Also Rises'
some politically incorrect foreign perspective from
(snip)"I’ve been warning about deflation risk since March 10 (”Deflation Heads Our Ugly Rear”), repeating the warning on April 13 (”Deflation is the Better Part of Valor”) and again on May 3 (”Osama Bin Deflation and the Money-Credit Paradox”). With gold headed towards $1600 and silver headed towards the moon, these admonitions seemed sadly out of touch with market sentiment — until the last few trading sesssions, that is, with silver down by 25% and gold off by about $100 from recent highs. The Fed can expand its balance sheet all it wants, but if the private sector can’t or won’t create credit, it can’t inflate, despite its best intentions.
We are not yet in a full-blown deflation, of course, but as I’ve been shouting over the din of the crowd, it’s not the right time to sell your bonds. The facts, to summarize once again are:
1) For the first time in history total bank credit has fallen; adjusted for the onboarding of items previously held off balance sheet, total loans and leases have fallen by nearly 10% from the 2008 peak. Nothing like this ever, ever happened before.
2) For the first time in history, total issuance of securities against private risk (corporate or real estate) fell by an astonishing 50% since the peak. We’ve never seen anything like it.
3) Interbank loans globally have fallen by a third from the 2008 peak.
Them that can borrow won’t, because they don’t believe that the Bernanke bubble will last. They won’t take on debt against hard assets (which is what propels inflation) because they are afraid of a credit crunch to come. And those that want to borrow, can’t. In short, the market is not stupid enough to follow Bernanke’s attempt to promote inflation. So it won’t work. We now know that Bernanke either is incompetent, or that he’s a Republican deep cover operative whose mission is to ruin Obama’s chances for re-election.
What do you do? Stay in low-volatility, cash-flow-rich stocks with exposure to the growth spots in the world economy, hold onto your bonds, and don’t be panicked into selling your gold (presuming that you hold a prudent portfolio hedge rather than a huge speculative position). It still might come in handy."(snip)
As a caveat, IMHO the author's reference to possible deflation relates to the 'macro' economy. Unfortunately where 'micro' economic issues are concerned, i.e. family budgets, there is already so much upward price pressure built up ( due to squeezed profit margins ) it's unlikely that essential family budget items will be deflating in price any time soon