a very reliable long-term inflation indicator(Oldebare)

Deflation warning	Oldebare	NEW 2/16/2008 12:50:43 PM
Thereare many warning signs about whether inflation is rising or declining.Most warnings come from short-term data that tends to cause daily orweekly knee-jerk reactions in the markets. These short-term reactionsgive varying messages about what is really happening to inflation. Inorder to have a real understanding about whether inflation is rising orfalling you have to have a very reliable long-term indicator. Thatindicator is the interest rate demanded by investors in one of thelargest markets on the face of the planet. That market is the USTreasury market, which is 10 times the size of the stock markets andtherefore a very reliable indicator about what the majority ofinvestors, believe is really happening regarding rising or decliningrates of inflation in the future. Eight years ago the interestdemanded by investors buying the 30-year T-Bond was around 6.5%. Todayinvestors are demanding an interest payment of around 4.5%. Inpercentage terms that huge and it's a true indication about what theworld believes is the real direction of inflation, which of course isdown. Over the last eight years real inflation has beenfalling and has not yet reached a point where it crosses that magicline into deflation However, if the economy continues to tank and debtcontinues to become such a burden around the neck of consumers thatthey really begin to cut back on spending because they believe thatprices are going to be cheaper next year, we could cross that magicline and quickly find the economy entering a debt-driven deflationaryspiral.