Great to hear from you! You and I have had this debate for some time about inflation versus deflation. It’s only a matter of time before we know the answer — perhaps a year at most.

On the most important issues, we do seem to agree — negative real interest rates are a farce that is inflationary which will end in disaster.

As far as the Asian economies go, I would say they had already been introduced into the global economy well before the so-called 2002 deflation scare that gave us 1% fed funds. But, you and I agree again about their ‘deflationary’ impact being well and truly over.

The only point where we disagree is whether the Fed’s reflationary ploy will lead to hyperflation (you) or credit revulsion and deflation (me). Earlier in the year, I would have been fine taking either side but I think deflationary credit contraction forces will take hold.

As for the dollar, it will head down eventually. But, for now it is undervalued versus European currencies (Euro, Swissy, Swedish Krona, Sterling). The next leg down for the dollar may be against busted pegs.

Any additional thoughts?

Edward

ps – I don’t think Rosenberg is formulaic. He is very much outside the Wall Street trend.

As far as keeping the banking system afloat, only the Fed’s laundering programs matter, and it will have to expand them, and monetize, as Rosenberg does seem to realize.

But the whole system is in an unstable state. Eventually the Fed’s attempt to hold down short term money for the banks will face an unremitting pressure from supply of sovereign debt and waning demand from major foreign institutions.

There is no need to continue with this farce of negative real interest rates if the laundering programs are kept in place. It is impaired assets the Fed needs to smooth over, not interest rates (if that were the case it has already failed).

I also don’t see a redux of the 2002 “deflation”. That was due to the introduction of Asian labor and products into the global economy. But the prices for both are just starting to go up. The dollar is inevitably going to continue heading down, pause notwithstanding. How will the 2002 factors repeat? I don’t see it.

This is formulaic thinking.

Its a shame shills like Rosenberg aren’t ever held accountable for the drivel the spew as analysis.

More banks are going to fail. The EU will stay hawkish. Heating oil will wipe out the consumer. The U.S. economy will falter. Bernanke will lower interest rates. The dollar will tumble causing all commodities to skyrocket, again.

The EU wants to make the euro the new world reserve currency. They’re not going to weaken the Euro. Think “Paul Volcker” in the 80′s giving the dollar credibility after Nixon et al destroyed the dollar over the Vietnam War.