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: mishedlo who wrote (33174)	5/25/2005 2:40:03 PM
From: Tommaso	Respond to of 110194

You have to go back to the Prechter quotation. He clearly means that if total resale value of long term treasuries declines in value, this is deflation. That's not true. Those bonds are not money. They are promises to pay money at a future date, plus a promise to pay a certain interest rate as long as they are outstanding. They decline in value because of the perception that future dollars will be worth less than present dollars. The value of such bonds goes UP during deflation. Now as to Milton Friedman. I subscribed for many years to his formula, "Inflation is always and everywhere a monetary phenomenon." I had to learn the hard way that it is not so simple. I would reformulate Friedman: "Inflation is always and everywhere a reflection of an imbalance between money and the things that money can buy, when money increases faster than the goods and services available for purchase with money." A war can cause inflation with no change in the money supply, by destroying material goods and by occupying human beings in destructive activities. An expanding money supply will not be inflationary if accompanied by large gains in productivity under peaceful conditions. This is what happened 1985 to 2000. I have been following the weekly releases of the Fed (now via the St. Louis Fed web site) for many years, and see the contraction in the various measures of the U. S. money supply recently. I do not know what is going on to produce these figures. It may be that with the Fed continuing to raise short term rates, there will be a convulsive contraction of credit that will result in a large drop in house prices as well as a drop in the financial markets. But I do not think that within the United States there will be the kind of deflationary drop in commodity prices that happened in the 1930s. I think that as the Chinese realize that the dollar is doomed, they will accelerate their conversion of dollar balances into commodity producing assets. I think that within the United States, prices for all imported goods will rise, especially imported energy. Perhaps the word I want is neither inflation nor deflation; perhaps it is "gradual impoverishment."

To: mishedlo who wrote (33174)	5/25/2005 9:59:29 PM
From: rayok	Read Replies (1) \| Respond to of 110194

Did the deflating bonds of the seventies cause monetary deflation, or, did monetary inflation cause higher interest rates, which caused bond prices to deflate? Bond prices are the effect, never the cause. "A drop in money supply is deflation Confidence about money may spark fears of inflation but it is not inflation per say. I believe this statement from Milton Friedman "Inflation is always and everywhere a monetary phenomenon" At any rate it is preposterous to say "A drop in the dollar value of total credit extended is inflation". Care to try again?"