RGE Monitor senior analyst Arun Motianey has recently joined investment guru Nouriel Roubini in saying we are headed for an inflationary world.

Motianey postures three scenarios: 1) inflation without indexation; 2) inflation with indexation and; 3) deflation.

“Deflation is a very serious risk [but] inflation is a greater likelihood.”

Motianey recently told Tech Ticker he thinks the central banks will probably choose to monetize public sector deficits.

“I’m expecting the central banks of the world to see the light…This would be a period of involuntary inflation, instead of involuntary inflation” (like the 1970s), he said.

In layman’s terms, the Fed will print money to buy Treasuries. Printing more money will inflate the dollar.

Because equities tend to respond positively to modest inflation, Motianey sees demand for credit will rise.

Motianey says in an inflationary economy, investors will hang onto corporate bonds. And natural resources and basic material equities, dividend-paying stocks, gold and other commodities are also attractive.

European Central Bank Executive Board member Juergen Stark says the risks of global stagflation should not be taken lightly, imarketnews reports. Stark says he could “see the temptation for governments to ask for higher inflation in order to monetize the dramatic build-up of public debt.”

Fed’s Yellen on Housing

The following excerpts from a recent paper San Francisco Fed President Janet Yellen offered some insight to the Fed’s thinking:

• “Now the [Housing] market seems to have stalled.”
• “…We’ve seen no let-up in the pace at which borrowers are falling behind in their loans. Further additions to the already swollen stockpile of vacant home represent a threat to housing prices and new home construction activity.”
• “What you want to see is delinquent borrowers becoming current. Instead, what happened was that delinquent mortgages moved in the other direction to an even poorer performance status. Many wound up in foreclosure…I am also concerned that we had a temporary reprieve in new foreclosures as the federal government’s trial modification program got under way.”
• Commenting on the 9.7 percent unemployment rate Yellen said, “I fear that unemployment will stay high for years.”