http://www.ft.com/cms/s/0/894015be-84a7-11df-9cbb-00144feabdc0.html
July 1 2010 Financial Times
The Short View By James Mackintosh
It is always easier to modify one's thesis than admit a mistake. Amendments are now under way to the story pushed by gold bugs. Gold hit record levels on the argument that the printing of money by central banks would spark inflation, or even hyperinflation.
The printing presses have certainly been at work. The US Federal Reserve's balance sheet, after slow growth for 30 years, has almost tripled since 2007. The Bank of England's has multiplied by five. Even in Europe, where Germany's collective memory of wheelbarrows of money being valued by weight dominates policymaking, monetary policy is ultra-loose.
Unfortunately for the gold investment case, there is absolutely no evidence whatsoever of inflation. Quite the opposite. Break-even inflation in the US is put at just 1.9 per cent over the next 10 years by bond investors, and even that may be a half-point overestimate, according to the Cleveland Fed. German 10-year break-even inflation is just 1.5 per cent. Government bond yields are tumbling, with the 10-year US Treasury below 3 per cent and the two-year at record lows; since inflation is terminal for bond returns, this does not fit the inflation story.
So the story moves to a new chapter: deflation equals inflation. That is, a move to deflation will prompt frantic monetary intervention, increasing the odds of hyperinflation.
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Michael