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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Lizzie Tudor who wrote (17947)2/28/2004 5:18:18 PM
From: Elroy JetsonRead Replies (3) of 306849
 
Because of the continued reduction in total payrolls I can now see an understandable mechanism to drive deflation. Since deflation destabilizes the banking system I have always assumed it's extremely unlikely since the Fed could easily create inflation to offset the deflation when measured in dollars - most people living on less even their salaries may be ten times as many inflato-bucks.

I think, like Japan, the Fed ultimately doesn't control this process. Money manager Peter Theil is interviewed in this issue of Barron's. He suggests deflation of 1 to 2% per year, another 50% decline in the dollar and a consequent doubling or greater in energy prices - plus a long-term trading range for the stock market between where it is currently and 50% lower.

This seems very plausible with a continued decline in wages earned. Even with lower interest rates, money has to come from somewhere to make payments on all the the debt.

There is still the issue of our long-term interest rates. Ordinarily those rates would be much higher if it were not for Japan, and to a smaller degree China purchasing our long-term debt. As you probably read, Japan just authorized another $540 Billion to purchase U.S. Dollars and debt for the coming year. They are, in essence, funding our entire Federal budget deficit. If we can experience the beginnings of deflation in spite of that magnitude of financial support imagine what would happen without it.

On a seemingly unrelated issue, I have decided I oppose the passage of California Props 57 and 58. Rolling the California debt into $15 Billion of bond issues removes the incentive to repeal Prop 13, which I see as inevitable. I think it's better to have our day-of-reckoning now rather than later.
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