Howard Ruff's E Letter Agrees with Bruce (to an extent): Deflation first, then Hyperinflation

Howard J. Ruff, author and financial advisor, has remained in the public eye for more than three decades. He is founder and editor of the The Ruff Times Financial Newsletter.

Excerpt from his E-newsletter:

First, we will continue to plunge into a major deflation period which will be characterized as a “recession,” and later in the year as a “depression.” Deflation and inflation are always monetary phenomena.

Second, deflation will evolve into a run-away-hyper-inflationary depression because of what government will do to try to prevent deflation, which is synonymous with depression and has overtones of the 1930s.

The government is creating money at a rate unprecedented in all of American History, with deflation and depression, driving their decisions, as politicians hate deflation. That is why they have been inflating the currency at varying rates for decades.

Now the Treasury and the Federal Reserve are pouring money into the economy at an unprecedented rate. Inflation is a monetary phenomenon caused by creating too much currency, and we are doing this like crazy.

But another factor is not very well understood, and that is that creating money isn’t necessarily inflationary at the moment of creation, because the money that has just been created is just sitting there. The banks have gotten the bailouts that improved their balance sheets and preserved their survival. But the money just sits there. The velocity of money is what really counts.


Bruce's Notes:

I agree with his assessment above. What I do NOT agree with is that he later talks about how to protect yourself in a deflationary environment (keep cash at a savings and loan for instance). While having some cash currently is not a bad idea- preparing for deflation is not something that needs to be done at the extent he believes (in my opinion). I think we will leave deflation pretty quickly here- by the second half of 2009. So, you really do not want to "time" the market and try to hop on and off deflation while it passes by like a train. I would be preparing for inflation now.