On the subject of deflation there are only two authors I know of who have written books on deflation. –- contrasted to literally hundreds who have written on inflation. These authors are Robert Prechter & Gary Shilling. The two of these men have over 70 years of combined “out of the box” financial thinking between them. They are unswerving advocats of deflationist theories. As the late C.V. Meyers, an early deflationist said – “All debt must be repaid by either the person who borrowed the money or the person who lent it”. This has seemed to me an absolute in economics which is often overlooked.
Moreover, studying the Japanese model of deflation …. when people simply refuse to go into more debt and to consume or buy things …. no matter what the stimulation by ….Mr. Bernake or anyone else people will simply refuse to borrow to augment already crippled assets. In Japan the stimulation of the Japanese government in building billion dollar bridges to nowhere and “stimulating” public works projects … did not even work. The banks were still crippled by huge broken assets held on their books while people still refused to borrow. Crippled city governments were renting out 4/5th’s of their public spaces for rent to keep going.
The booger in the wood pile, however, is not consumer borrowing but “derivative instruments” which will implode in the center of our financial system like financial Hydrogen bombs.
The current world wide abundance of “derivative instruments” is something in excess of $200 trillion, and perhaps more: that 8 x to 10X the world GNP.
So. Write off the banks. Mr. Bernake will be struggling mightily to liquefy a world without money…. forget ramping up the consumer to buy more “stuff”.
We are well cooked.
… I am a historian and over the last too many decades I have come to expect the “exogenous event” (the accident) to be a larger determinant of human history than all the well meaning government bureaucrats, and bankers, and insurance salesmen plodding away in their linear world. When there is no money how will the government pay the 43% of the people employed by the government in one way or another?
Unfortunately, as one of your astute readers pointed out, “The annual world economy is approximately $30trillion. Worldwide interest rates run around 3% - or $1trillion total worldwide interest. Therefore, the US trade deficit ($800billion) currently consumes
virtually all the interest earned by all investors all over the world.”
The world runs on cash. Not investment.
Clark |
