So we have Europe and the US in a deflation style trap (until both economies are allowed to properly de-leverage) with sprinkles of inflation around the edges, the US and EU banking system is artificially being pumped and supported by the government sector and their incumbent central banks. The question is why didn't Europe and the US fall into broad consumer inflation by the trillions of dollars spent to attempt to stimulate both economies? The answer lies with the fact that the banks are gobbling up excess liquidity at an extreme rate. This indicates that both the EU and US banking system is still insolvent. The private sector has shrunk, with Germany revving exports, but still has a troubling banking system. But domestic consumption has not revived to inflated levels. The US export sector is poor and will remain that way, as China is still undermining the trade gap between the US and China via it's pitiful appreciation of the Yuan. So growth via the US and Europe is negligible, Asia has ramped up stimulus programs and inflated property markets from Taiwan to South Korea, Singapore, Indonesia and of course China. The Asia growth story is fulled by commodity nations, that are now running par inflation rates with Asia, as we know China's inflation will blow out sooner than later.
What appears more likely on the scenario, is even if the US doesn't statistically fall into a double dip recession (but just stays adrift in an economic dead zone), it will be the commodity based nations, via China that will lead to the global bust, thus global GDP will be stripped down. China will initiate a bust scenario for the world, even if China or a portion of China crashes, commodity producing countries, that are still running large fiscal deficits and rely heavily of debt markets to secure funding. Will be hit hard. As all commodity producing countries are suffering inflation. The biggest denier in the inflation camp (commodity producing country) is Argentina.
from Bloomberg May 2010 (older article for 2010, but still relevant re: the fudged China data)
"Economists, including former central bank President Alfonso Prat-Gay, say annual price increases are more than 25 percent, which would make Argentina’s inflation rate the second highest in the world behind Venezuela. Both countries would take the inflation crown from Zimbabwe, where prices climbed 500 billion percent in 2008, according to the International Monetary Fund, before slowing last year. Argentina’s statistics agency said prices rose 9.7 percent in March from a year earlier.
Quickening inflation in South America’s second-biggest economy isn’t a concern only for the poor. Doubts about the government’s data mean investors demand higher yields on Argentine bonds, said Edwin Gutierrez, who manages $5 billion in emerging-market debt at Aberdeen Management Plc in London. The current yields on Argentine debt of about 12 percent are unsustainable, Prat-Gay said.
“Anyone who’s playing Argentina knows that they’ve been fudging the data,” Gutierrez said in a May 5 interview.
Economy Minister Amado Boudou said the government’s inflation data accurately reflect cost increases for the poor. Complaints that inflation is being underreported come from wealthier Argentines and investors who hold debt that yields more when inflation quickens, he said in an April 14 interview.
Polls show Argentines expect prices to surge 30 percent over the next year. The government will publish April’s inflation data May 12.
Extra Yield
The extra yield investors demand to buy Argentine bonds over U.S. Treasuries is 696 basis points, or 6.96 percentage points, according to JPMorgan Chase & Co. The so-called spread for Iraqi bonds is 3.88 percentage points. The Dominican Republic, whose $46 billion economy is barely one-tenth of Argentina’s, sold $750 million of bonds last month yielding 7.5 percent. Argentina’s dollar bonds due in 2015, by comparison, yield more than 12.5 percent.
Higher bond yields make it more expensive for President Cristina Fernandez de Kirchner’s government to build roads, pay for welfare programs and support subsidies for buses and trains."
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