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

To: philv who wrote (14387)	10/31/2004 11:20:33 AM
From: mishedlo	Respond to of 116555

There seems to be near universal agreement that the $US needs and will drop even more as measured against foreign currencies. If you agree with that, would that not argue in support of future inflation? Can the US continue to borrow and increase her national debt infinitely and have a strong dollar too? Does a universal agreement on anything make it more likely? That said, does a falling US$ really cause inflation? If demand drops and prices drop no. I do expect demand and prices to drop along with a falling US$. Future inflation will be tied to inflationary pressure in wages IMO. That pressure is in reverse. We will continue losing jobs to India and China IMO barring some huge protectionist measures of some sort. Unlikely at this stage of the game but who knows a few years down the road. At some point the US will find out, just like Japan did, that you juts can not force people to take on more debt. Whether the credit markets figure this out first and shut off the spigots or borrowers just refuse to borrow more is not relevant. At some point the house of debt will collapse on its own weight the very point it stops growing. As long as the borrowing continues the charade can continue. Something will trigger a need to save and it could be forced: such as a plunging housing market where huge numbers of people are upside down, or it might be increasing bankruptcies just cause creditors to shut off the spigot. That credit crunch is coming and it will not take much to trigger it. Perhaps the election. An undecided election? Who knows? But what I do know is that the destruction of credit and debt will be enormously deflationary not inflationary, regardless of what the US$ does or does not do. Mish