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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (47161)12/13/2005 3:03:53 PM
From: GST  Read Replies (1) of 110194
 
Once again, you ignore the facts to promote your theory.

<Basically the difference between my position and everyone else's aside for what I have mentioned above is that I see deflation is coming because I see a huge collapse in credit (and it was that credit that fed these bubbles) and the result of that is doing to be a recession. In fact, credit expansion and consumer debt service has gotten so out of hand we are going to see a deflationary crash perhaps, or perhaps something like what happened in Japan.>

As you do so often, you conveniently ignore anything that contradicts your deflation hypothesis. Japan was a creditor nation running a huge current account surplus with stupendous domestic savings. The US is the mother of all debtor nations running a massive current account deficit financed by foreigners recycling their dollars. The US has no domestic savings to tap. When the bust comes the floor comes out from under the dollar, the cost of money soars and the economy stagnates or shrinks -- otherwise known as stagflation. If the Fed prints money it simply increases the level of inflation. Your dollars are not going to suddenly be worth more if the economy tanks and the true risk premium on credit is priced into the market. On the contrary, you will simply find that the world revalues all dollar denominated assets while raising the cost of everything imported upon which we are sorely reliant -- including but not limited to oil (and yes that is inflation, completely apart from peak oil or what the Fed might or might not do). In a word, we are faced with a period of worsening poverty beacuse of our global debtor status. Liquidating this debt will cause us to be poor -- there is no way around it. How poor and for how long is hard to say. But make no mistake, the answer lies not with the Fed -- the answer lies with our foreign creditors.
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