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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Jim Willie CB who wrote (32802)5/19/2005 6:26:23 PM
From: Elroy Jetson  Read Replies (2) of 110194
 
Our credit creation has clearly caused systemic price inflation in China, and asset inflation here in the US. But this is a distinction without a difference.

Unwind this credit creation and both the systemic inflation in China and the asset inflation here reverse as well. Hard money economics does not see a fundamental difference between these two forms of inflation. They are merely two incarnations of the same thing. Remove the credit and one is a temporary as the other.

Yes, the CPI only measures asset inflation to the extent that it raises the price of other goods - but this is an entirely arbitrary distinction that has nothing to do with the economics of the situation. The type of inflation caused by credit and money creation depends on other underlying conditions, such as over-capacity, culture, etc.

A talented friend of mine from the real estate development industry, who speaks both English and Chinese, has spent the last five years working for a developer in China. When I saw him last month, he called China a house of cards which has built far more factories, infrastructure, and everything than they will be able to use in the next five to ten years. It seems likely that China's program has brought capital destruction to their nation as well, which will lower their standard of living.

This highlights the most damaging impact of currency crank economics, which creates ever larger amounts of credit and money - without a corresponding increase in capital. The new money creates uneconomic investments which would not otherwise be made, thus destroying capital even as the amount of money increase.
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