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

To: GST who wrote (39765)	8/25/2005 4:04:27 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

None of them were plausible. Not a single one of them addressed all my points only picking and choosing parts of them. If you have an all encompasing viewpoint that addresses the following points, let's see it. Here is the nut hyperinflationists need to crack: 1. Falling home prices 2. Falling wages 3. Stagnant employment or rising unemployment 4. Slowing world economy 5. No incentive for the FED to bail out consumers at the expense of banks 6. The K-Cycle is not likely to be defeated by throwing more money at the problem. 7. At some point lenders refuse to lend or borrowers stop borrowing. That time will be at hand when housing plunges. Look at current events in the UK as a prelude for what will happen here. 8. Overcapacity 9. Glut of cheap labor Here are the inflationist scenarios as best as I can since no one else seems willing to take it on. Here are two scenarios that will work: Scenario A: A1)Increasing demand for commodities from China. A2)Housing prices stay strong and economic activity picks up worldwide. A3)US wages rise A4)Rents rise A5)Demand for goods in the US stays strong A6)Demand for goods in Europe picks up A7)Demand for goods in China picks up It may not take all of those but it would take a lot of them to be consistent with sustained inflation. Scenario B: B1)Increasing demand for commodities from China in the face of a US housing bust B2)Consumers keep spending money and banks keep lending even as asset prices fall B3)Should consumers stop spending in the face of job losses associated with the housing bust, the FED goes on a mad printing spree. B4)Since the FED can print but not force the consumer horse to drink (increase borrowing), a "helicopter drop" is issued (whereby Congress passes laws that literally gives money away to consumers) B5)The "helicopter drop" is done in the US only and other countries refuse to finance it. (If everyone did it the US$ would not drop). B6)Banks and other creditors have no say in this and are destroyed along with the FED in the hyperinflation that takes over. B7)The consumer is bailed out at the expense of big creditors like Citycorp, American Express, Visa, MasterCard, etc. B8)The business cycle is defeated. There will never be a recession again. B9) Consumers never need to save again but are bailed out by rising asset prices. Again it may not take all of those but it would take the crucial ones: The FED and Congress acting together to bail out consumers at the expense of creditors. It would probably have to be a US related thing only to force the dollar to get smashed vs. other fiat currencies. That is what I am looking for: A logical scenario that addresses the full implications of a housing bust, or some sort of scenario that addresses the full implications of a FED that voluntarily produces hyper-inflation. No one to date has come up with a plausible sscenario other than "helicopter drop" and I do not find that plausible. I do not find rising wages in a housing slump plausible either. Nor do I find your belief that lt-rates are low because the economy is strong a plausible explanation either. I have addressed the falling US$ a zillion times and that is simply not plausible either. If the falling $ theory was palauible, prices of cars and goods from China would not have been falling like they were. In fact, car prices were falling in spite of higher prices for steel, oil, and a falling dollar to boot even though parts were largely imported. So you see that falling $ theories are not plausible either. OTOH overcapacity and a glut of cheap labor is obviously very real. Overcapacity will RISE with more people out of work. Very very deflationary. Now, lets see a plausible theory, starting with a housing slump, loss of jobs, overcapacity, a global capacity of cheap labor, and a FED that has no real incentive to bail out consumers at the expense of creditors..... that leads to inflation. I say you haven't done it because it is not really possible without introducing some kind of panic for a long period of time. Address all the above points, one by one, add to it the "credit implosion" that you admit is going to happen, and sho me a plausible scenario that causes inflation. I say it cant be done. Puplava will not even debate me on it. I have no doubt you will try and come up with something, I also have no doubt it will not look plausible to me. Mish