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

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To: Joan Osland Graffius who wrote (3887)	12/26/2003 1:34:33 AM
From: MulhollandDrive	Read Replies (3) of 110194

If this deflation is managed poorly, while the capital is under destruction, after the destruction of capital the system could experience massive inflation. In other words if the central banker floods the system with fiat currency a John Law type of environment could then be experienced. hello joan... let me add my concurrence to your view...i am curious though what you believe would constitute managing the deflation poorly and which monetary policy would ameliorate the deflationary forces. if using the classic definition of inflation being too many dollars chasing too few goods, we know we are far from that scenario. on the demand side we have an aging demographic (as does the eurozone) which will be responding to ever increasing pressure to accumulate savings (exacerbated by the need to "make up" losses resultant from the bubble years)....so not only do you have the scenario as you described whereby higher (or even static prices) for essential goods and services (taxes, insurance, etc) diverting monies which could be spent on nondiscretionary goods and services or........... less $$$$ chasing more goods....deflation. i think this scenario plays out perfectly with the idea promulgated in long wave analyses or kondratieff winter, from what i understand the money supply flooding you describe may change the winter cycle somewhat from a deflationary cycle to a stagflationary cycle....but i don't really believe that will happen. i am more and more convinced that the so called helicopter drop will prove fruitless when it comes to increasing real demand. i'm going to call it my "you can lead a horse to water but you can't make him drink" scenario <g3>, because when you get right down to it, the broader economy is made up of individuals making individual investment and spending choices based on their personal best interests.... if that personal best interest means savings, and therefore less consumption and less demand, the winter will come of necessity. i found this year old opinion piece interesting in positing the view that our awareness of the cycle will change it...i believe it's an arguable point, i'm still thinking about it, i'm just not sure i believe we can really alter the winter, i tend to believe the demographics are just too compelling a force to mitigate against it. gold-eagle.com financialsense.com

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