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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (19635)12/28/2004 11:12:03 AM
From: John Vosilla  Read Replies (2) of 116555
 
<Heinz to Mish:
absolutely - the huge increase in money supply under Greenspan and the concomitant growth in credit/debt is what has laid the foundation for a deflationary debt collapse. had this growth not occurred, what would there be to deflate? people actually confuse cause and effect to some degree, as evidenced by the question "Am I now supposed to believe that high monetary growth over an extended period of time leads to continued low interest rates?" it is the other way around - persistently low interest rates during the disinflation period have led to high monetary growth over an extended period. when disinflation 'goes over the edge' and becomes DEflation, the cause-effect relationship reverses - a falling money stock then promotes lower interest rates, as demand for credit vanishes and money flees into the safe havens of government debt and gold. of course in this scenario interest rates for private debtors tend to go up rather than down, to compensate for the perceived default risk.>

Would it be more appropriate to say persistently low real interest rates along with a steep yield curve during a disinflation period have lead to monetary growth over an extended period? Could disinflation perhaps have gone over the edge already with vanishing demand for credit in many depressed markets in the midwest?
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