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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (11145)12/7/2001 4:20:54 PM
From: Mark Adams  Read Replies (2) of 74559
 
Scout Report (Red or Green, color of uniform unclear)

The destruction of debt via BK reinforces deflationary trend by shrinking the pool of wealth/income/cashflow. Less wealth chasing an expanding supply of goods and services.

Risk aversion increases the risk premium demanded, while nominal rates paid on savings decreases, due to the disinflationary impact of the deflationary trend. Less income chasing an expanding supply of goods and services.

The positive feedback loop;

The increase in real interest paid increases the burden of servicing debt. Eventually debt took on under viable business plans fails due to events outside the expectations of strategic planners- events in the 'tails' of the bell curve at the time the investment choices were made.

Hypothesis;

One source of the problem lies in the wealth concentration aspect of compound interest on debt. To the extent the real rate paid exceeds the growth rate, a debt trap occurs.

By lowering the real rate, the problem can be mitigated entirely or delayed. In this case, we have a negative growth rate and an increasingly positive real rate demanded due to the increased risk premium. Accelerating the debt trap and related instability.

Another source is the instability that results when linear thinking collides with nonlinear outcomes.

Conclusion;

We could hope for salvation, but we must remember that those who understand what is taking place are well positioned to avail themselves of the opportunities presented. Greater opportunity in times of greater volatility. Which puts self interest in opposition to the best interest of the whole system.

Visibility of the field is poor at best.
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