Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: glenn_a who wrote (927)	9/21/2003 8:18:31 PM
From: David W. Taylor	Read Replies (2) \| Respond to of 110194

Glenn_a, Great post! I am afraid that I may not have time tonight to respond in a fully considered way. Here is my central thesis though: Deflation is not a falling of prices. It is actually a demand for value usually expressed as demand for Dollars. Other stores of value are fine but cash on the barrel is king in an economy where nobody has any liquid currency. Greenspan is caught over a different barrel by Bush's almost insane grasp for political power. Bush's need to spend, spend and spend is a very raw attempt to grab the reigns away from the public to a chosen few, who will theoretically reward him well once he is dethroned. As more and more people in the western democracies are forced in over their heads, they will start trying to raise readies to pay bills. For the last few years in the US and to a lesser extent elsewhere they have been able to do this by borrowing against less liquid assets. Several factors will force that avenue to close. The main one is a need to keep the major currencies including the US Dollar relatively real. This can only be done by stopping the printing presses and raising interest rates. Once people realize that they cannot borrow more against their house and that the US has stopped printing money, they will have to drop the price of everything from assets to labor. Bingo ....Deflation. The effect of higher interest rates will be to lessen investment but that will take a while to work through too. It takes people a while to come around. This will not be a huge change at first because they have not been able to loan enough to real borrowers, who create wealth, so it will take a time for people to see this. This is in effect the people causing the same reaction that the financial institutions had in the 30's. Bottom line: Deflation, with all of its bad connotations, will happen. Greenspan can see this and is terrified. Bush and his hip advisers cannot understand this and are in denial. Outcome: Bush will lose badly in 2004; worse than dad. Greenspan will retire. The next dude (or dudette) will change direction and cast the die. The US Dollar will be back in demand and gold will still be roughly where it is today or even lower before it turns up in a few years. My aim is to keep my powder ($$$) dry and take advantage of the bargains to come. David