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

To: mishedlo who wrote (21840)	1/20/2005 2:08:30 PM
From: John Vosilla	Read Replies (2) \| Respond to of 116555

<we can rest reasonably assured that the bond market will cotinue to surprise everyone....> We can't have at deflationary collapse without a backup in long rates first. This is the only true way to get all the excess debts cleansed and get the multiples on overvalued assets down. We do know of several ways rates on the long end can rise even in a recessionary economy. Remember the 70's for some clues only this time the debt levels and credit risks are much greater.

To: mishedlo who wrote (21840)	1/20/2005 5:58:55 PM
From: Elroy Jetson	Respond to of 116555

This is what I hope happens, and what economists Schumpeter and Rist always said would happen under these conditions. Not just Schumpeter and Rist, but most non-Monetarist economists. Like John Law, the Monetarists are always true believers in their "system", the ability to print money trumps all cycles, and so see they nothing but blue skies ahead. But it hasn't happened for a long enough period that it will surprise me if and when it does happen. Sometimes it's tough to tell if I'm reading the situation accurately of projecting my hopes and beliefs onto the current events. Time will tell. . . . the Fed will tighten until the asset bubbles DO begin to deflate. they will then immediately lower rates again, but it will be too late - the deflationary train will already be in motion. Real interest rates should then soar in spite of new record lows in nominal rates. the 'reflation' effort of 2001-2003 has only POSTPONED the deflationary contraction, and made sure it will be worse than it would otherwise have been. "Policy does not allow a choice between depression and no depression, but between depression now and a worse depression later". ** "Inflation pushed far enough would undoubtedly turn depression into the sham prosperity so familiar from European postwar (WW-I) experience, and would, in the end, lead to a collapse worse than the one it was called in to remedy." For "recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead" Joseph Schumpeter ** A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920's teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation. Charles Rist .