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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (3176)12/11/2003 2:41:43 PM
From: ild  Read Replies (2) of 110194
 
From Heinz on deflation/inflation

i think the inflationists have it completely wrong. the current 'reflation' trades in commodities and stocks may have more time left, a few months perhaps, but they are totally dependent on the boom in China. and that boom will most assuredly turn into a bust at some point. in the meantime, the 'deflationary gap' in the Western economies is wider than ever. i.e. idle resources are at a fresh high - neither business nor labor have any pricing power. note that an INflation would depend on further exponential credit expansion - however, credit has on the contrary begun to CONTRACT. it can't be overemphasized enough what this implies. note that money supply growth rates have just experienced a steep plunge - a result of the mortgage refi orgy dying down. right now, interest payments on existing US based credit are probably exceeding fresh credit creation - the first baby step in what will eventually become a huge deflationary bust imo.
there is only one way to counter this development, and that is to literally drop money from helicopters. i don't think the CBs are going to do that, as they would effectively print themselves out of power that way. the Fed is now running into the same problems the BoJ has experienced: it can lead the horse to water, but it can't force it to drink.

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