There are 4 possibilities regarding the current US economy. Without sounding like an economist, I will only be making the points that I think are significant to each here:
- Hyperinflation - super high prices of precious metals and commodities;
- Inflation - high prices of precious metals and commodities;
- Stagflation - zero growth with Inflation; and
- Deflation - all assets down right across the board.
Personally, I am ruling out the possibility of Stagflation, which is regarded as the "at best" scenario by Wilbur Ross. Upcoming US corporate profits are set to disappoint and US consumers, who make up the majority of the US economy, are now going bankrupt, if not with negative equity. The US economy, in my view, is already in a recession if reported figures have not been manipulated. The latest surge in US unemployment simply confirms my prediction made back in September 2007.
I am also ruling out the possibility of Hyperinflation. Each recession is unique. The present one happens with the US Dollar as the world's reserve currency. It is falling in value, but it has been gradual because central bankers around the world have been cranking up their printing presses to prevent a dramatic crash that could have taken place in a short amount of time. It is not in the interest of foreign governments, which have been financing the spending binge of the US consumers and invested in US treasury, to see their investments depreciating in value. However, this doesn't mean the US Dollar can be saved. It simply means the crash will be gradual, with rebounds and rallies along the way, of course. As you might have noticed, I have been shorting the US Dollar against the Japanese Yen for a number of times now.
So that left us with Inflation if not Deflation. Either case, Inflation will lead the way since central bankers are still printing money like crazy.