The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: pogohere who wrote (50116)	1/18/2006 12:37:24 PM
From: GST	Read Replies (1) of 110194

It is a fallacy to think that US demand sets prices for goods and services traded in dollars in global markets. If you are paid in dollars then what matters is the value of the dollars you have to trade for goods and services. Will US demand fall? Yes. Will other countries be affected? Yes. Will prices fall as a result? That depends on the dollar. A falling dollar causes prices to go up, even as demand is going down. For the sake of argument, lets say the dollar drops by 30% in trading value. It will take more of your precious dollars to buy things and so you will get less for your money -- not exactly deflationary. The question is not what will happen to prices because of falling US demand. Rather, the question is what will happen to the dollar when our debts overwhelm our ability to finance our economy. Other countries are likely to experience deflation -- China and Japan are candidates for deflation. But the US has turned itself into a banana republic and will not be rewarded with increased purchasing power.

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