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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (1196)	3/4/2004 12:38:24 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 116555

Date: Thu Mar 04 2004 10:51 trotsky (mike@puplava) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved he sure didn't persuade me. note: at the article's beginning, he lists all the reasons for why a deflationary era seems highly likely to happen, but later on fails to address them - i.e. he does NOT show why they would not lead to this outcome. the cardinal mistake the inflationists are making is to ignore the transmission process in modern day fiat money creation. money does NOT just appear 'out of thin air' as they assert - money is only created when BOTH a willing lender AND a willing borrower are prepared to do business. only THEN is money out of thin air created - and i insist that all the credit floating about and currently supporting malinvestments will eventually be liquidated along with those malinvestments - and then we'll have true deflation in the sense that the monetary aggregates are going to shrink. the boom in commodity prices IS of course a temporary manifestation of monetary inflation - in China and Japan. both the Chinese and the Japanese helicopter money exercises are however doomed in the long run, as they tend to create both more overcapacities ( malinvestments ) as well as bad loans festering in their respective banking systems. meanwhile, in the US total credit market debt is now an estimated 360% of GDP - a historic first as debt mountains go. it must be close to its limit, and reaching the limit will lead to deflationary debt default and liquidation. the recent rise in commodity prices actually hastens the arrival of this moment, since they squeeze the margins of industry and the wallets of consumers - which makes debt service more onerous. already the US debt mountain depends on Ponzi finance to be sustained - and EVERY Ponzi scheme eventually fails, no exceptions. or, as Bill Bonner has so nicely put it: the debtors won't get what they WANT ( inflation ) , but what they DESERVE ( deflation ) .