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Kent Thune

Which 'Flation Is Next?

By May 31, 2012

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It seems every year, money managers, economists and stock analysts tell the investment world which type of inflation the US economy will experience next.  What will it be--Inflation, Hyperinflation, Deflation, Stagflation or some hybrid?

Let's do this by order of elimination:  It won't likely be hyperinflation because, as much as we don't like to admit it, the Federal Reserve has the ability to stop extreme inflation with monetary policy (raise interest rates).  Even if banks start lending, the Fed can simply increase the reserve requirement.

Deflation is possible but this suggests moving deeper into recession.  If you're a pessimist, you may consider this an option.

Stagflation (slow economy combined with above-average inflation) is possible.  Inflation is a sign of a growing economy, even if it is slow.  However,  real stagflation, such as that of the mid-1970's is not likely.

Beat inflation!

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