The coming US dollar crisis Message Board

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Strategies & Market Trends : The coming US dollar crisis

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To: John Vosilla who wrote (6997)	5/6/2008 12:56:37 PM
From: SouthFloridaGuy	Read Replies (1) of 71456

When debt levels are maximized relative to interest rates, then you have deflation. There is no capacity to increase the NOMINAL prices of assets via inflation (though the Fed did a pretty damn good job of trying to in 2002). In each of the instances you provided, high interest rates precipitated the debt crises and lower interest rates solved them (by letting people to take on more leverage). Yes, you had micro-deflationary instances in those cycles, but the magnitude of the current crisis is unprecedented. This go-around, the lowest interest rates of the cycle were seen at the peak of the lending boom. This go-around, housing prices were at valuations never seen before. This go-around, corporate profits are so far above trendline, it's never been seen before. Pull up any graph of borrowing costs and you will see that despite 325 basis points of Fed cuts, borrowing costs are substantially higher today than they were 6-12 months ago and there is no respite in sight. It's a vicious circle if you cannot borrow yourself out of your over-borrowing.

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