Shedlock Says Inflation Not Concern Till Money Not In Mainstream Market; Faber Believes Printing Money May Trigger Collapse Of The US Dollar

In an article posted on Yahoo Finance, Michael “Mish” Shedlock, an investment advisor with SitkaPacific Capital and author of the MISH'S Global Economic Trend Analysis economics blog, and Marc Faber championed both sides of a debate on which of the two - inflation or deflation - poses a greater threat to the US.

According to Shedlock, credit is contracting, despite efforts made by Ben Bernanke to improve the liquidity of the financial system. Mish said that inflation cannot result from just the printing of money by Bernanke. Instead of making its way into the mainstream market, the money supply is simply sitting there as excess reserves on the balance sheets of the reserve bank, he pointed out.

However, Faber, the publisher of the Gloom, Boom and Doom Report, said that Shedlock is not taking into account a critical factor. The government starts printing money continuously to offset the deleveraging of the private sector when the economy becomes sluggish and this leads to the piling up of fiscal deficits.

Faber added that the government will revert to printing money and offering stimulus packages if the economy worsens again and deflationary forces take hold. This could bankrupt not only the Fed, but all the other western governments as well.

Faber believes that bankruptcy will result in the collapse of the US dollar and other western currencies, leading to a rise in inflation across the world. This could trigger geopolitical strife and unrest in society.

The Dow Jones Industrial Average (NYSE: DJI) is down 0.06%. While iShares Barclays TIPS Bond Fund (NYSE: TIP) has moved up 0.30% and iShares Lehman 20+ Year Treas.Bond (NYSE: TLT) has risen 0.52%, ProShares UltraShort 20+ Year Treasury (NYSE: TBT) has slipped 1.14%. Meanwhile, Financial Select Sector SPDR (NYSE: XLF) has added 0.13%, PowerShares DB US Dollar Index Bullish (NYSE: UUP) has lost 0.55% and SPDR Gold Trust (NYSE: GLD) has gained 0.12%.