Christopher Hayes of New America has recently released a policy paper arguing for the need to inflate our way out of our national debt problem. The idea is that if you let inflation go up moderately for several years, you could alleviate the massive public and private debt burden substantially.
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It will be interesting to see if Bernanke chooses this elevated inflation approach (it may happen even if he doesn’t intentionally promote it.) If we do indeed see higher inflation in the years to come, Daniel Indiviglio of the Atlantic thinks that more bubbles will be one of the results.
More Bubbles
Finally, inflation has the potential to create bubbles. One bubble might be in lending. By easing money supply over an extended period, lending might get out of control. Another potential bubble could occur in stock and commodity prices. People will be looking for ways to protect the value of the wealth, so will be turning to sources other than cash to do so. That will drive up demand for stocks and commodities, potentially overheating those markets as well.
This scenario is not necessarily a bad one for investors who invest in assets like stocks and commodities that can outpace elevated inflation. However, it would be catastrophic for fixed income investors.
Relative strength strategies are extremely well positioned to capitalize on bubbles. After all, the stronger the leadership, the better the prospects for relative strength strategies to outperform.
Posted by Andy Hyer 
