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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (27990)3/7/2005 11:32:55 AM
From: mishedlo  Read Replies (1) of 110194
 
Key points as to why deflation is coming

1)Unless the commodity-led inflation triggers a wage-price spiral, the inflation is not sustainable. Globalization has created a global platform in the supply of goods and, increasingly, in services. There is still a massive labor surplus in either unskilled or educated labor in the global labor market. Any push for higher wages in developed economies would push global companies to shift more production to low-cost economies like China or India.

2)The enhanced risk appetite, however, has decreased the cost of capital for businesses and economies that were starved of capital, and they have taken advantage of the cheaper capital to increase investment. This force continues to push up the prices of natural resources. The resulting inflation further increases risk appetite in the global financial system. As financial investors pile in, commodity prices rise substantially above what real demand would imply. This dynamic is leading to a big commodity bubble.

3)The End Is Debt Deflation

4)The major central banks may try to ease aggressively to fight the unwinding spiral. However, it would be too late to revive money demand. Most speculators who are driving demand for money today would have been cut down already.

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