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

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To: russwinter who wrote (3525)	12/17/2003 11:48:29 AM
From: ild	Read Replies (2) of 110194

Date: Wed Dec 17 2003 10:39 trotsky (@falling money supply) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved there's no mystery there. bank assets are declining - industrial and commercial lending has been contracting for 3 years, and now the mortgage credit bubble has simply stopped dead as well. since 'money' in the fiat system is only added with the help of fresh debt creation, its supply tends to begin to shrink when the credit expansion for whatever reason stops ( in this case: industrial overcapacities & higher mortgage rates ) . the HUGE existing debt mountain therefore also represents the major argument supporting the idea that the coming economic downturn will be deflationary in nature. 'money' will be destroyed on account of defaults, and consequently, the money supply should then shrink further. also, the savings-starved private sector will attempt to build up cash balances - this liquidity preference is also set to contribute to the deflation ( i.e., the 'price' deflation, since goods purchases will be continually deferred. the current weak X-mas shopping seaon is a small foretaste of what's in store in the future ) . no wonder the bond market is rallying gain - it KNOWS. Date: Wed Dec 17 2003 10:49 trotsky (Pit Yorlie, 7:54) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved please note that the alleged Japanese 'growth' is entirely explicable by the recent introduction of hedonic indexing to Japan's economic statistics. iow, it's only a statistical phenomenon now, similar to US 'growth'. big declines in IT spending end up as big increases in the new era GDP accounts. however, the reality is quite different. note that in a deflationary slow-motion collapse like Japan's, hedonic indexing tends to introduce especially large distortions to the numbers, due to the bigger 'deflator'. so the Japanese are now also counting money that no-one ever spent or received as part of their GDP. it's all smoke and mirrors.

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