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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: GST who wrote (88472)11/5/2007 2:20:47 PM
From: Horgad  Read Replies (1) of 110194
 
"A credit contraction can be extremely inflationary in a country with a massive current account deficit and huge government debt that requires foreign credit to maintain its currency level."

I can see that short term a credit contraction would be inflationary especially to a country that relies on a lot of imports. But eventually it should lead to a bunch of people in the US with less purchasing power and subsequent pressure to lower prices especially on locally made and bought goods.

Frankly, I can't see how anybody can be sure of either outcome. But I will agree that the effects of inflation are certainly being felt now and I am positioned accordingly. No problems there, but it is the fear of a market crash followed by a depression/deflation environment that keeps me awake at nights.
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