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

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To: GST who wrote (75114)	12/9/2006 1:30:47 PM
From: mishedlo	Read Replies (1) of 110194

<"A deflationary collapse requires two special factors to be present: 1. A strong or desirable currency that people are content to hold; 2. An inability by monetary authorities to create new money at will.> Precisely correct. Precisely correct? It happened twice already. Once in Japan and once in the US. Thus it is precisely incorrect. The Japanese central bank created money at will and dropped interest rates to 0% to boot. It just did not go anywhere productive. People may not realize it but exactly the same thing happened in the great depression. Monetary policy was actually very loose by the Fed but capital destruction happened at a pace that dwarfed it. During the great depression the Fed injected huge sums of base money. That is a fact. It simply did not matter. That is exactly what happens when asset booms collapse and I might point out we are in the midst of a collapsing asset boom in housing right now. That is a fact. I believe it will spread to the stock market eventually and I also believe that enormous amounts of job losses will result. Those are beliefs but let's review the facts. 1) We are in an asset based bubble 2) The housing bubble has started to collapse 3) Consumers are deep in debt 4) The fact that consumers are so deep in debt, especially in an environment so heavily dependent on housing and consumer spending at a time of global wage arbitrage and outsourcing of labor makes deflation all the more likely. Yes deflation is made far more likely because of that consumer debt. By arguing against point 4) "deflation is made far more likely because of consumer debt." you are arguing against simple economic facts. Period. Furthermore, US consumer debt increases the deflationary pressures relative to Japan at the start of Japan's deflation. Again, that is a simple economic fact. You persist in arguing with simple economic facts. Mish

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