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Gold/Mining/Energy : Gold & Gold Stock Analysis
GLD 383.12+0.8%Nov 26 4:00 PM EST
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To: Horgad who wrote (15808)10/26/2008 1:33:57 PM
From: Aloysius Q. Finnegan  Read Replies (1) of 29622
 
1929 - Is it different this time?

"Deflation can not happen in a country with a FIAT currency, a trade deficit, a horrible balance sheet, and a bunch of officials willing to print unlimited amounts of money."

I tend toward this position as well. However, could the situation today be distinctly different than the last great deflation?

Interesting article in Ben Stein's NYT column this morning. The point being that the US does not face a liquidity crises as was the case in the depression ... but they do "urgently face a solvency crisis. In other words, banks would have ample reserves to lend but might lack assurances that they could meet all their financial obligations if these loans went bad."

Regardless of how much money the Fed pumps into the banks "they have had so many losses and faced so much uncertainty that they dared not lend for fear of killing their banks with bad loans - so we actually have had a solvency crisis."

"I assume the future will be much like the past, but sometimes it isn't."

Gregory Mankiw argues along the same lines in his NYT article 'But Have We Learned Enough'. As he states " The Fed and the Treasury Department, intent on avoiding the early policy inaction that let the Depression unfold, have been working hard to keep credit flowing. But the financial situation they face is, arguably, more difficult than that of the 1930s. Then the problem was largely a crisis of confidence and a shortage of liquidity. Today, the problem may be more a shortage of solvency, which is harder to solve."

I think I'll quit reading this stuff over breakfast.
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