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To: Oblomov who wrote (11333)	8/15/2000 11:15:33 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 436258

you are right...and probably, for the time being, they are correct - inflation may well be much higher in reality than the government currently claims. the various aspects of this have been discussed here at length. the most important point though is the growth of credit. they are consuming themselves silly, but they incur massive debt to do so. consider that for several years home equity ownership has been falling in spite of the real estate bubble, as second mortgages are used for stock market speculation and to pay off credit card debts. the same goes for corporations who have recently reached a new record in debt vs. equity. this is what typically happens during disinflation booms, as the CB is tempted by productivity gains and low inflation to pump up the money supply too much. this fosters massive malinvestment as well as financial and real estate bubbles. over the most recent 12 month period e.g. telecommunications related debt has grown by a massive $600 bn. i sincerely doubt that future income streams will justify this debt burden, as the resulting overcapacities from the investment boom will force down prices long before the expenditures can be amortized. essentially a credit and asset bubble is a confidence game - at some point, when both have grown sufficiently sizeable, a small confidence shaking event can lead to an emotionally charged period of asset liquidation, which in turn exposes the flimsiness of the debt collateralization. the ensuing drop-off in demand as consumers and corporations alike scramble to raise cash and pay off debt wherever possible brings on the deflationary spiral. instead of allowing the malinvestemnts to be cleared out, politicians and CB's then tend to react with muddling-through measures which prolong the agony until a point of no return is reached and massive business failures mark the climax of the bust. see Japan's trend in bankruptcies for an illustration of this very same scenario (first, the asset bubble pops in 1990 - banks and financial intermediaries sit on huge unrecoverable bad loans and stop lending - consumers stop spending and start to save due to the economic uncertainty - prices begin to fall as purchases are being deferred - the CB drops rates to zero in this case, to no avail. periodically huge government spending gives the economy ST shots in the arm which allow technically insolvent banks and their even more insolvent customers to muddle on hoping for better times - finally, the phase of massive liquidation of unsound businesses begins): csf.colorado.edu note that the current k-wave has followed the script very well...after the last k winter ended in '49, the 'spring' began and lasted until the late sixties/early 70's. then summer came, the 70's to early '80's period of extreme commodity price inflation and soaring interest rates. then autumn, the disinflation boom that essentially started in the early '80's and lasted until now, the equivalent of the '20's boom. imo, the case for the winter trough having already occurred during the '98 crisis that was marked by pretty significant lows in many commodities is very hard to swallow. to have such a mild winter at the tail-end of the most massive autumn boom in history is highly unlikely. none of the culprits of the winter period have yet made their presence, or effects truly felt. where's the unwinding of the credit and asset bubble? it simply hasn't occurred yet. and the deflation stricken economies have at best experienced mild deflation, not the truly devastating kind. so my bet is that the cyclical inflation upturn now is a 'false spring' that will soon succumb to the secular trend once more. imo the trigger may well be a further heating up of the inflation upturn tempting CB's around the world to hike rates to the point where the various worldwide bubbles see their equilibrium compromised... this should in my estimation happen within the next say one to 1 1/2 years. we will recognize the onset of winter....it will become obvious very fast.