Nouriel Roubini Doesn't Understand Inflation and Deflation (well well...)

Source: Reuters

FORT LEE, N.J., Nov. 5 /PRNewswire/ -- The National Inflation Association

today released the following statement to its http://inflation.us members:

"After the financial collapse of 2008, Nouriel Roubini emerged as one of the

world's most well-known and respected economists.
Roubini this week called Jim

Rogers' prediction that gold will reach $2,000 in the next decade 'utter

nonsense' and said that there is no inflation to drive gold prices that high.

He also said that oil's rise from $30 to $80 per barrel is 'very difficult to

justify' when demand for oil is down to year 2005 levels. Although Roubini was

accurate at predicting the housing collapse in 2005 and how it would sink the

economy, many other people including the co-founders of NIA were also right

about the housing bubble in 2005. While we consider Roubini to be more

intelligent than most other economists out there today, he is dead wrong when

it comes to inflation and deflation.

"We believe Roubini needs to wake up and realize that inflation is already

here today. Gold rising to a record high on Wednesday of $1,098 per ounce and

oil rising to $80 per barrel is a symptom of inflation. The Federal Reserve

printing dollars at an unprecedented rate by definition is inflation. Just

because we haven't seen a rise as of yet in the government's phony CPI index,

doesn't mean we don't have inflation today.

"Roubini expects to see heavy deflationary forces through 2012 from industrial

overcapacity, falling labor costs and a still damaged financial system; but it

is our belief that with the Federal Reserve leaving interest rates on

Wednesday at 0%, a massive overdose of excess liquidity will override these

deflationary forces and ultimately lead to hyperinflation. Inflation is the

easiest thing for any central bank to create and the Federal Reserve is

clearly pulling out all the stops to see that we have inflation.

Unfortunately, the Federal Reserve doesn't have an exit strategy. By the time

inflation becomes the top story on the news each night, it will be impossible

to control.

"In our opinion, the world will be shocked at how quickly gold rises to

$2,000. Jim Rogers' prediction of $2,000 per ounce of gold in the next decade

is extremely conservative, it could happen next year. Jim Rogers based his

prediction on the fact we have been discussing for a long time, gold's high of

$850 in 1980 adjusted for inflation is $2,300 per ounce in today's dollars.

Compared to 1980 when we were the world's largest creditor nation, today we

are the world's largest debtor nation with a national debt that is about to

hit $12 trillion. With the U.S. government itself estimating a $9 trillion

budget deficit over the next decade, we will eventually get to a point where

50% of taxes collected by the treasury will be needed to pay the interest on

our national debt. Combined with unfunded liabilities for Social Security,

Medicare and Medicaid, we believe hyperinflation is inevitable.

"We agree with Roubini that U.S. stocks have run too far too fast and another

dip in nominal terms is more likely to happen than not. What we know for sure

is, U.S. stock markets are going to fall substantially priced in gold. History

tells us that gold is the only real safe haven and after the collapse of a

financial bubble, the Dow Jones/Gold ratio always falls to a level between 1

and 2.

"In 2008, the world rushed out of stocks and into U.S. dollars as a safe

haven. We said U.S. dollars were the riskiest asset of all and that gold was

the only real safe haven. Since then, the world has been rushing to get rid of

their dollars by buying stocks, commodities and precious metals. With

unemployment numbers being released on Friday, it is possible that investors

will soon realize the U.S. economy is not truly recovering and stocks are

rallying only due to inflation. This time around, as investors cash out of

stocks, more people will stay clear of the U.S. dollar and rush to buy gold

instead. We predict a major short-term decline in the Dow Jones/Gold ratio

from its current level of 9, back down to the low of 7 we saw earlier this

year. Over the next 12 months, the Dow Jones/Gold ratio is likely to make new

lows for the current bear market."

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About us:

The National Inflation Association is an organization that is dedicated to

preparing Americans for hyperinflation. The NIA offers free membership at

http://www.inflation.us and provides its members with articles about the

economy and inflation, news stories, important charts not shown by the

mainstream media; YouTube videos featuring Jim Rogers, Marc Faber, Ron Paul,

Peter Schiff, and others; and profiles of gold, silver, and agriculture

companies that we believe could prosper in an inflationary environment.