Read My Lips: Inflation, Not Deflation is the Fear

Yesterday  the Treasury sold $10 billion of 5-year inflation-protected securities, or TIPS, at  auction. Something extraordinary happened which has never happened before. They were sold  with a yield of negative 0.55 percent.  Yes, a negative yield. Investors were willing to pay the Treasury 105 cents in order to buy $1 of inflation protection. This means the public is not worried about DEFLATION, but INFLATION.

We recently reported that you can expect a rise in the cost of breakfast cereals. The CRB index has risen to its highest level in two years, including materials such as cotton and copper. Companies like Starbucks, McDonald’s, General Mills, Goodyear, and Kimberly-Clark  have all reported higher cost inflation. So the government says these increasing prices will kickstart the economy, get us to sell more, put more people back to work (and thus cut unemployment) and reflate asset prices.

Polling our reporters and financial correspondents, we don’t think so but that’s just our 2 cents. Other people seem to be questioning the approach as well.