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

To: Jim Willie CB who wrote (7513)	2/9/2004 11:16:32 PM
From: glenn_a	Read Replies (1) \| Respond to of 110194

Thanks for the post from the European Banker Jim. Definately rings true for me. Inevitable and severe bond market illiquidity. Debt deflation. Long-term interest rates rising to balance supply and demand in illiquid bond markets. A collapsing US$. Deflation most severe in Asia. Bank defaults as gaping holes uncovered in the global financial system. Real economy thrown into chaos. ... Not a very pleasant picture all in all. :( Plan to keep liquid in $CND gov't T-bills, gold as a store of value, and a smattering of natural resource/commodity value plays to wait out the current reflationary efforts, and, well, just in case I'm wrong. ;) Regards, Glenn

To: Jim Willie CB who wrote (7513)	2/10/2004 7:57:56 AM
From: russwinter	Read Replies (1) \| Respond to of 110194

This locked in liquidity is a legitimate thesis, and I don't dismiss it out of hand. But, where I depart company with it is that the liquidity CAN find it's way into the real economy (actually more accurately the markets) as inflation/speculation (not real economic growth). This can happen in a major way when the set up enters the crack-up boom phase. In otherwords as virtually every financial instrument has been exploited, and fundamental shortages develop from overheating and the terrific maladjustments caused by egregious policy, participants look for the real value. Increasingly they will speculate and hoard real economy goods. This will really take off when the mainstream finally throws away the old playbook and gets the inflation "surprise" I've been talking about of late. Since the market has been deceived, fooled, and poorly prepared by Greenscam, the financial media, and Wall Street about inflation, you could see a a real stampede or panic into all kinds of commodities, or anything that represents real value (as opposed to financial or credit based). In many respect this process is well underway, Message 19784518 and manifests itself (with only brief pauses) with the continual upticks in commodities, and continual downticks in the USD. This is why events such as the introduction of gold ETFs is so important. That could be the giant sucking sound vehicle that really gives gold cache.

To: Jim Willie CB who wrote (7513)	2/10/2004 10:35:29 PM
From: gregor_us	Read Replies (3) \| Respond to of 110194

I Disagree with the European Banker, in part. One of his major points is that wealth stored in fixed assets like houses is not available to "enter back into the economy" causing inflation. Nothing could be further from the truth because the writer here has ignored the monetization of fixed assets through re-financing and home equity loans. But I agree with the writer that we are pretty much on the threshold of becoming Japan. I think we'll have zero interest rates... LOCKED-IN LIQUIDITY This immediately raises the next great question that is repeatedly posed to us: Couldn’t all this excess liquidity in the financial markets one day flood into the real economy, boosting inflation in consumer and producer prices? Our answer is a categorical no. First of all, the excess liquidity went into fixed assets, having boosted their prices. But to move money out of these assets and into the real economy now would require the sale of such assets against cash. Undertaken at a major scale, however, this would merely depress asset values because invested money is in the aggregate definitely locked in. To flee into “real goods,” the investor has to find other people who are ready to take his asset against their cash, and that means that a net money inflow out of the financial markets and into the economy cannot take place. Therefore, when the stock market crashed in 2001–02, no money exited. Only prices changed. No money moves. Markets are liquid only as long as buyers predominate. They become illiquid when sellers predominate. Liquid markets can turn illiquid overnight, without any contraction in the money supply.