<<That and the fact that Greenspan declared victory over it coupled with the fact that NO ONE sees it coming are probably my strongest arguments.>>
Mish, you keep saying the "NO ONE" (except you and Heinz) see this coming....I beg to differ. Almost all housing bears feel the coming residential RE bust will create a deflationary sinkhole....the only question really is how soon will it be manifest, and how quickly will it propagate. We all now what the Fed (especially if either Soylent or Bernanke are in charge) is gonna do, it's just a matter of how extreme will they push the envelope when the snowball starts rolling downhill. How quickly will that destroy the dollar? If the dollar implodes at the same time, how safe will G-bonds be?
In short, I suspect that monetary velocity will be severely depressed, and the Fed will try to compensate by kicking up money supply by "notches unknown to man". Helicopter drops, direct asset purchases (corporate and muni bonds, stocks, houses, whatever-the-phuck). It's insane, but is it impossible? Keep in mind that on a much smaller scale, the government does have a precedent for doing this, namely the RTC. So I wouldn't be too sure they wouldn't try it again (in fact, I'm thinking it's more and more likely). In essence, they'd Weimarize the economy to clear the debt by devaluing the currency. Is that so far fetched? |
