Investors who fled from the stock market and are clinging to safety in cash or bonds may have set themselves up for another hard-to-imagine disaster: Inflation.
The consensus among economists is that the main threat for the foreseeable future is not rising prices but the opposite: Deflation amid worldwide sluggishness.
However, “I would suggest that the economic consensus look at all past episodes of these type of budget deficits, and all past episodes of 20 per cent-plus growth in the money supply when these deficits are monetized,” says Jeff Rubin, the iconoclastic chief economist at CIBC World Markets.
The danger is that central bankers print too much money, degrading the value of each dollar.
“History speaks very loudly on this issue and very unequivocally that reflation, not deflation, is the dancing partner to these size public deficits,” Rubin said in an interview.
Prices in Canada heated up 0.7 per cent last month, more than expected and reversing a five-month disinflationary trend. The year-over-year inflation rate edged up to 1.4 per cent.