Thought I might mention something about how M2M accounting has resulted in tremendous destruction of asset values, and subsequently, money supply..
First, let's agree on a few assumptions.
Debt is money, right? When debt is created, money supply increases. When debt is defaulted upon, money supply is destroyed.
Most of these CDOs and MBS's were based upon mortgage bonds, right? And many of these mortgage bonds are still performing loans, despite the probability that the underlying real property has diminished in market value, right (regardless of the market's future expectation of default down the line)?
Now.. what happens when M2M accounting (FASB 157) is applied to performing assets with an illiquid market? They get depreciated to 20 cents on the dollar, even if the top rated assets are still fully performing instruments spinning off interest and/or dividends.
So M2M accounting, as of 2007, being applied to asset backed securities that were not previously marked to market, has initiated a deflationary spiral and initiated massive deleveraging.
Deleveraging represents money supply destruction.
Deleveraging represents DEFLATION.
Thus, until the deleveraging ceases, along with firesales of depreciated assets required to accomplish this deleveraging, any fears of hyper-inflation are probably premature.
Open for other informed and logical opinions.
Hawk |
