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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: TH who wrote (96294)8/15/2008 7:05:44 AM
From: carranza2  Read Replies (2) of 110194
 
I should think that credit contraction, which is here, coupled with debt destruction, which I don't think we have yet seen on a sufficiently high level, are harbingers of deflation. But first we go through an inflationary period that I think we are experiencing now and have been experiencing for some time.

Gold's fall and the dollar's relative rise may very well be telling us that deflation will be arriving soon.

If this happens, the Fed's response is obvious: it will print wildly, devaluing the dollar and causing another commodity/oil/gold upswing.

I'd say this is more likely the future than anything else.

Bernanke is going to make sure the credit contraction ends. Unfortunately, this will require that the banks obtain capital infusions for it's clearly the state of their capital accounts that is keeping credit tight. I fear the taxpayer will ultimately bear the cost of re-capitalizing banks. In Bernanke's view, this is no doubt better than an uncontrolled deflation.
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