Hi lbs.
((While a deflationary scenario is possible ala 1929, I think it is going to be more like Weimar Germany. Why? Al and Co. think they learned some lessons from 1929 and will not let it be repeated on their watch.))
Well, you may be right. If so, however, that would mean the following:
1 - The Fed has the power and the means to prevent a deflationary collapse.
2 - US$ creditors have very little power, and would be unable to prevent the real value of their debt holdings becoming worth much less that their present value. A corrollary, there will NOT be a creditor revolt. Another corrollary, U.S. interest rates will not normalize for a long time - i.e. effectively, they will be artificially pegged at a negative (or very low) real rate of interest.
3 - The "interests" of the dominant view of the U.S. elite are viewed as best served by a debasing of the currency.
4 - As you say, the Fed learned something from the 1930's deflation, but it learned nothing from hyperinflationary scenarios such as the Wiemar Republic of the 1920's, or at the very least is judges this scenario as a better alternative.
5 - One other interesting point BTW, was that the German hyperinflation of the Weimar Republic and the bust of the early 1930's (i.e. the Great Depression) are related episodes. Germany bankrupted her middle class through currency debasement, and her elite maintained their purchasing power in part via massive US$ loans (particularly in the latter part of the 1920's), and an artificially pegged/support Deutschemark (or whatever the German currency of the time was called) on the foreign exchange markets. She rebuilt her industry with these loans, and ultimately when the Nazi's came to power, defaulted on the principle. It was this massive debt base - much incurred by the US$ to tottering foreign financial systems and economies - whose rupture caused the deflationary bust that was the Great Depression.
6 - Regarding the middle class ... I'm not sure that if there's an ensuing K-wave bust, that anything will prevent their suffering greatly. This will likely be the case irrespective of whether the bust is inflationary, deflationary, or some alteration between the two. In Weimar Germany, as a result of the inflation of the 1920's, the German middle class became very disillusioned with both Liberal Democracy and Economics ... thus the fascist response.
Just some random thoughts. But I do really believe that hyperinflation is an option. It's very challenging to think through the implications of both hyperinflation and deflation, assuming that a K-wave bust is very possible.
Well, I guess we'll experience the unfolding of this extraordinary historical drama in "real time" as the days unfold. I'm certainly hedging my bets on the "hard asset" side in case my view - that of global deflation - is wrong.
Thanks for perspective lbs. If you want to add any additional commentary or thoughts, I'd be most interested.
Regards,
Glenn |
