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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (20106)	10/17/2004 4:07:20 PM
From: mishedlo	Read Replies (2) of 110194

Are you arguing that more money creation, will ADD to the value of the Dollar? Is too few or scarce Dollars (or Yen or Yuan) really the problem with the world economy? On the contrary, I am arguing that money supply and velocity will drop like a rock. Just as it did in Japan. Not just here but the destruction of debt (by default) will cause a worldwide recession. With a slowdown everywhere, demand for copper, aluminum, steel will collapse. Not sure about the price of oil. Too many factors but it would probably go down to the extent that it is used in plastics, etc. That may not be enough to overcome peak oil (temporarily) or it may not. I am not clear on that. If that is what will happen, then stocks and commodities will collapse everywhere as trade collapses everywhere. Our imports will crash. Of course our exports will not be that great either but.... our goods will be cheap cheap cheap with a weak US$. Looking ahead further that would be relatively good for exports perhaps along the lines of say making BA more competitive with something like Airbus. Just as japan printing money did not stop japan deflation for 10+ years I believe the same story happens here. You presume because Japan is a nation of savers and the US is not that we will never again be a nation of savers. Well I think the next downdraft will force people to start saving or at least stop spending. Last month I read that savings rate finally effectively fell to something close to zero. Call me stupid but if it goes negative we will just see more and more and more bankruptcies. When the carnage is all said and done, and debt destroyed like it should be and reckless credit expansion has stopped, then and only then does inflation take off. When that is depends on how long the FED attempts to prolong the agony. In a worldwide recession, I do not see many very good hiding places, certainly not copper. I believe a US housing slump will indeed cause a worldwide recession. Mish

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