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

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To: ild who wrote (73997)	11/14/2006 12:42:10 AM
From: bond_bubble	Read Replies (1) of 110194

Note that, price increases came late in 1929 (as per then Fed): prudentbear.com The great irony is that Adolph Miller and others appreciated these dynamics. Miller “emphasized accommodating the needs of commerce and preventing speculative uses of credit” but he appreciated there was no panacea or magic formula. He was no “real bills” ideologue, but a policymaker that understood and astutely feared Monetary Instability. “No credit system could undertake to perform the function of regulating credit by reference to prices without failing in the endeavor.” “… it is important to realize that no two situations are identical. They do not repeat themselves with such accuracy that the method by which you successfully deal with one situation will insure an equally satisfactory result in another situation.” “Miller thought that the price index was the wrong target. Price increases came late. ‘To the extent that the Federal Reserve System can do something useful and constructive… it has got to have a far more competent guide than the price index offers. Assuming that we want price stability – I prefer to put it as I have already put it, economic stability with price stability as a concomitant or resultant of that – in order to obtain it we have to look at things closer to the source or beginning of troubles than the price index… If you are to have competent control of credit, you cannot wait until inflationary developments register themselves in the price index. By that time the thing will have already gotten considerable momentum.” BB: My bet is that inflation shows up in Chindia, US all over the world!! I'm not sure how people dont see it happening. If ever there was a dollar/credit crash, the $ reserves in Asia are going to take all the wheat/oil/meat etc out of US and into Asia. This will instantaneously cause high inflation, despite credit deflation (i.e no credit growth, but lot of credit getting converted to USD as the reserves are used to purchase oil and food!!). I believe, Bernanke is hoping that, the trick is not to allow dollar/credit crash. I'm not sure how that can be prevented if US interest rates have to be increased to defend dollar if Europe and Asia raise interest rates to prevent inflation in their nation!! Alternatively, if Fed raise rates to match else where then the credit bubble bursts!! The Fed can not defend both interest rates AND dollar (against other high interest currencies) !! One of them has to give!! And both scenario leads to credit deflation and food, oil inflation!!

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