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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (53978)2/16/2006 10:19:28 AM
From: GST  Read Replies (1) of 110194
 
<so in the wake of a housing collapse, the persistent decline in associated goods and services will be deflationary (to the extent it happens)>

In the wake of a housing collapse, if indeed that is what happens, you should expect a persistent decline in demand for the dollar, and a persistent decline in its value as a result. A persistent decline in the value of the dollar will drive the price of money higher (it will cost more to offset the currency risk faced by foreign investors). A sharply lower dollar will drive prices up in an economy that is already nearing the $1 trillion dollar trade deficit level. Net net -- yet will buy less and you will pay more for what you buy in an economy that is either stalled out or actually shrinking -- i.e. we are likely to see stagflation as the outcome of a housing collapse.
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