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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 374.35+0.7%Nov 18 4:00 PM EST
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To: carranza2 who wrote (109291)12/29/2014 9:30:17 PM
From: THE ANT1 Recommendation

Recommended By
elmatador

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In a debt based economy money is created by increasing debt. Even with zero rates not enough people who can borrow want to borrow as all assets have been maxed to reflect zero Fed rates. It is hard for rates to go lower and make PE rates go higher or in the case of housing make the ratio of housing/medium area family income go higher. Most asset price increase in the last 5 years has been due to the realization rates will stay low.If asset prices are at all frothy it is due to people responding to asset price increases and not seeing the end of the trend ahead. The US government must deficit spend or deficit lower taxes for any chance of creating inflation. I dont think it is a coincidence that oil plunged after this last election. The deflationary winds of the latest dollar increase hasn't even hit the US yet. Even if the US deficit spends and starts to create inflation, the fall in bonds might wipe out enough debt to cause deflation if the rising rates didn't do the job.Now what if the government owned all debt in the US and then created inflation by deficit spending and refusing to raise short term rates. The loss on bonds would occur in the belly of the government, forcing the government to take the loses.If the government did not cut spending or increase taxes they would have even higher deficit spending(yes deficit spending is as close as we come to printing) and further increase inflation,causing more losses to debt. It would lower debt but be a dangerous game and distribute loses to all Americans where as deflation will cause losses to the wealthy who own those assets and not the American public in general.Much safer to accept deflation. A recent court case made it easier to renegotiate retirement agreements for local,state,and federal workers.The main problem with deflation is that pension obligations were set based on inflationary expectations.The other problem is that deflation can make zero fed rates look high and result in debt liquidation.Just because it hasn't happened yet does not mean debt liquidation doesn't start soon. Oil made its move very quickly and debt liquidation may be here before you know it. Asset price inflation is almost certainly over The FED finally made the right move and dropped rates before assets crashed and everyone complains .A FED rate of zero will be too high shortly.The trick is to deficit spend just enough to keep inflation at 1-2%.This will be tough to do as the Japanese are finding out.We have too low a deficit at this time. We should raise it with middle class tax cuts or infrastructure spending.
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