False Dillema: Prechter vs. Inflation.
I don't see what the fuss is all about. Massive Re-Flationary artillery has been brought out for three years now, for one reason alone: Washington is fighting Deflation. So yeah, they've sparked "some" inflation in the process--but they won't quit until they get job growth--and more Inflation, to boot. Tax Cuts, Rate Cuts, Liquidity, and a Weak Dollar. They've done it all and they're going to keep doing it.
But they have not won the battle yet. So Prechter is not wrong, yet.
On this issue pretcher is not wrong at all. He has made so many bad calls (on gold, on the market, on ewave itself (the people an the CFZ-Ewave board are far far better) but one simply has to look at everything and discard the junk and find the truth.
The truth here is simple. You simply can not inflate your way out of all this debt, especially while losing jobs. It simply can not be done (short of a mammoth redistribution of wealth from the rich to the poor - eg the abolishment of all debts public and private and the default of US govt bonds to the rest of the world).
Question #1
Does ANYONE here disagree with the general principal that this debt can not be inflated away? If you do disagree, then how will it be done if not by the way Greenspan is attempting?
Question #2. Does anyone here think that this debt is worth anything? That all this money that has been lent out can ever be repaid. If someone does think all this debt at the state, federal, corporate, and personal levels wil be repaid (when wages are not rising) will be paid back, then please tell me how and when.
Question #3.
Will this debt untimately be destroyed (written off) bankruptcies etc. If it can not be repaid what happens to it? Will the world keep funding US debt forever?
Question #4.
How the F will raising interest rates solve the problem?Will it make it easier or harder for everyone to pay back debts?
OK here are my answers
#1) no the debt can not be inflated away
#2) much of this debt is totally worthless and will never be repaid
#3) This debt will at some point have to be written off. Attemst to fight it only makes matters worse and creates more debt that has to be destroyed. That is the moral hazard of reckless spending.
#4) Raising interest rates does not solve the problem but it would bring about destruction of credit and a complete collapse sooner. The choice of immediate destruction is in and of itself a moral hazard of some sort so the agony will likely be prolonged just as Japan prolonged its deflationary agony for years.
Destruction and writeoff of worthless debt is defaltionary. Plain and simple. Gross missallocations of capital did NOT create inflation where it was needed (jobs and payrolls). All it did was create more debt that needs to be destroyed. All the NCENs, all the banks that lent money foolishly, all those in power are fighting like mad to not see their capital destroyed. In the end we will write off all this bad debt, just as surely as Japan will SOMEDAY write off all of its debts. Once that debt is destroyed, then and only then will we see inflation.
Pretcher is not wrong. THis debt will be destroyed. It will NOT be inflated away (or Greenspan wins his gambit) and we are headed to the deflationary ice of hell. When the S&P falls to 600, does anyone here think that will have inflationary consequences? Does anyone here NOT think this bloated POS market supporting assinine PE's and worthless debt will NOT have its day in court? Is that a deflationary or inflationary thing?
The US is living beond its means. Does anyone doubt that? We WILL cut back our standard of living as jobs are lost to the global markets. Does anyone here doubt that? Is that inflationary or deflationary?
Inflation exists only in ones mind. Not reality.
M |
