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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: MulhollandDrive who wrote (3892)12/26/2003 2:27:54 AM
From: Joan Osland Graffius  Read Replies (1) of 110194
 
Mulholland,

I think I agree with your take on deflationary forces. Like I said, it is my opinion there is a law of economics that systems where massive amounts of capital are invested in non productive assets - this capital must be destroyed.

I think during the destruction of capital the central banker must keep the money supply sufficiently tight where the new loans have a high probability of being serviced. In other words there is only high quality debt that enters the system. If the central banker and the banks would manage so only high quality debt enters the system, high inflation could be avoided

I do not know what will get the citizens in this country to start saving. I believe we will have some event that will force this to occur and I would bet this savings will not be in stocks of companies that have no stockholder equity. <g>

My goodness, look at the bankruptcies that are occurring and have occurred since we experienced the beginning of the first down leg in the US stock market. IMO, this is the first inning of 9. <g> If one looks at the debt of our governments, US corporations and citizens, there is a whole lot of capital that can not be serviced.

We are starting to see here in Minneapolis the city defaulting on their revenue bonds. IMO, this is the tip of the government default cycle.

I also think precious metals and other commodities will do well during a deflationary cycle as well as an inflationary cycle. IMO, the current thinking that gold, silver, etc. are assets to use as a hedge against inflation is bogus. These assets as well as other commodities are a hedge against a currency from a country that is in financial trouble.

I am sure some commodities will not inflate during the next recession, but as long as the US dollar is declining against other currencies most commodities will do well in US dollars.
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