Oil prices are stuck above $100, food prices have been rising and gasoline is too damn high. But Michael "Mish" Shedlock of Sitka Pacific Capital remains convinced deflation, not inflation, is still the economy's great threat.
Mish says the key is credit, which is still contracting. "Bernanke has managed to revive the junk bond market but consumer credit is still plunging," he says. "That's pretty amazing when you look at all the stimulus that's out there."
Given the lack of demand for loans, and dearth of qualified borrowers, Shedlock is not worried that all the money the Fed has pushed into the banks is going to "flood" into the system, a key concern of the inflation hawks. "Right now there's a lack of businesses that genuinely want to expand," he says. "Why would you want to expand in this kind of environment?" (See: What Recovery? The Economy's Weak And Getting Weaker, Mish Says)
Generally speaking, Shedlock believes QE2 has failed to revive the economy and only served to reflate financial assets and pump up commodity prices, which he predicts are going to "plunge" in coming months.
Yet having said all that, Shedlock has been and remains bullish on gold, as you'll see in the above video. Unlike many who view gold as an inflation hedge, he sees as it a beneficiary of deflation driven by debt de-leveraging, a trend he believes is set to accelerate as the global economy grinds to a halt.