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Strategies & Market Trends : The coming US dollar crisis
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To: axial who wrote (20010)4/25/2009 8:54:01 PM
From: GST1 Recommendation  Read Replies (2) of 71455
 
It is easy to confuse conditions of slow or negative real growth with deflation. Growth will be nonexistent or negative for as far as the eye can see. But inflation is not a matter of growth. Inflation is a matter of the purchasing power of a currency. Our currency's purchasing power is based on our ability to import debt capital on favorable terms -- and we can only safely assume to import the quantity of debt we need when there is strong growth. We have something north of $50 trillion in unfunded federal liabilities and outright debt obligations already -- and this amount is strapped to a rocket pointed at the moon.

In a stagnant or shrinking economy we can not find fresh sources of debt -- and yet we cannot get off of the debt merry-go-round. A falling dollar is by far the most likely medium to long term outcome of slow growth. That, combined with endless attempts to conjure up growth out of thin air by printing money -- tons of it -- sets the stage for an inflationary spiral that seems likely to be with us for decades.

Investors who focus on deflation do not, in my view, adequately account for the international predicament of being a gigantic global debtor in a stagnant global economy.

The most likely future is stagflation.
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