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

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To: John Vosilla who wrote (56257)	3/22/2006 5:03:09 PM
From: Mike Johnston	Read Replies (1) of 110194

I think that high inflation combined with artificially low interest rates and false inflation statistics will to certain extent cushion the decline in real estate prices. And that is what the Fed is counting on. The real estate bubble and an increase in perceived household wealth was a way to mop up the mess left in the wake of the Nasdaq bubble collapse. Current strategy of printing money, monetization of bonds and underreporting of CPI is designed to gently deflate the housing bubble so that nominal losses are minimal. Real losses in bubble markets will be at least 50%. Nominal losses of that magnitude would spell disaster for the economy and millions of homeowners. For the Fed, it is not an option. Of course with massive money supply increases, the risk of hyperinflation is great. And that is where underreporting of CPI comes in, they hope to be able to turn off the spigots after the housing adjustment takes place but before any potential currency collapse. IMO though, they will fail and eventually we will suffer a full blown dollar collapse and currency replacement.

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