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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (12849)4/29/2004 1:25:50 PM
From: ild  Read Replies (1) of 110194
 
Date: Thu Apr 29 2004 12:04
trotsky (frustrated et al. @Ackerman's theory) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
or rather, Sol Paha's theory: imo not really thought out all that well. they contend that a coming deflationary debt collapse will lead to rising demand for dollars, and conclude from that that the dollar's EXTERNAL value will rise. obviously, that's not really logical. in the situation they describe, the dollar's INTERNAL value no doubt would rise - but why would it rise vs. the OTHER fiat currencies which without a doubt would be subject to the very same deflationary squeeze? it's not as if the Yen and the Euro were NOT beset by huge amounts of debt. in fact, since a large proportion of the existing dollar claims is held OUTSIDE the US, a global deflationary collapse would probably cause the dollar to fall vs. these other currencies, as holders of dollar claims would attempt to cash them in to service the debt in their home currencies.
in any event, the modern-day deflationary era is highly unlikely to develop into an all-out unmitigated contraction along the lines of the 1930s. Japan is probably the best example of a modern-day deflationary era, the deflation is persistent, but relatively mild, as the CBs have become quite adept at liquefying the system at every opportunity and keeping malinvested capital alive for much longer than one might expect or is actually advisable.
in short, the Paha theory has serious flaws - the main determinants of relative exchange rates in a free-floating fiat system remain relative real interest rates and how much is printed of one vs. the other.
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