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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (101069)8/20/2009 3:25:59 PM
From: Amark$p1 Recommendation  Read Replies (1) of 116555
 
Mish: "The answer is the Fed has no power to give away money to consumers, and even IF they had that power they would not do it. The reason is people would pay off their loans and banks do not want to be paid back with cheaper dollars.

The Fed will not act against its own best interests, and giving money to consumers would be doing just that. That is a practical constraint that nearly everyone misses! Indeed, look who was bailed out, it sure was not consumers, it was banks at consumer expense."
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The only way the US can decrease its Debt to GDP ratio quickly is for the banks to be paid back with cheaper dollars. It's a matter of when not if. The US Govt first bails out the banks and then bails out the consumers. Rather than experience a "lost decade" of deflationary spiral, the US Govt only option is to ensure the banks are paid back with cheaper dollars. Once most of the debt has been sufficiently cleared, then the system resets and banks will loan and consumers will borrow.

What is inaccurate with these comments...?
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The US will have deflation and unemployment in the short term. I agree with most ALL your comments in the short term. But there can be riots on the streets (or other factors) and current politicians/Fed officials can be voted out of office so that banks are effectively paid back with cheaper dollars. The US Govt will not and cannot accept a "lost decade" of deflationary spiral.
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