For twenty years, economist David Rosenberg held a special place amongst his fellow prognosticators, by consistently outlining a bearish case that was as chilling as it was cogent.
But those days are over and the Gluskin Sheff chief economist and strategist has just switched his long-standing forecast for deflation to one that sees some inflation.
"I think what's happening now is a complete mirror image of what happened thirty years ago. We've come full circle," he says in the attached video. "Fast forward to today, and we don't have Paul Volcker, we have a Ben Bernanke-led Federal Reserve and we do not have the most anti-inflationary policy in modern history, we have the most pro-reflationary monetary policy that we've seen in at least seven decades."
Don't fight the Fed has a new convert.
"My assumption is that the Fed is ultimately going to get what it wants," Rosenberg says, pointing out that his main concern is not with the 6.5% unemployment target, but with their inflation target. "I've got news for you, a 2.5% inflation expectation is not price stability."
And it's not just in the U.S. either. He says there's been a global fundamental shift on what central banks want. Where they once sought disinflation and price stability, he says, we have the exact opposite phenomenon today.
"My sense is that once this consumer deleveraging cycle is over, and there are signs that it is coming to an end if it hasn't ended already, you're going to see the velocity of money start to rise, against the backdrop of double-digit growth of the monetary base, and that is going to lead to inflation down the road."
Not the double-digit '70s-style inflation that plagued the Volcker era for years before he was ultimately able to break its back, Rosenberg says, but rather a mild form of stagflation for years to come, and he thinks stocks and bond markets are reflecting this already.
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