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

To: bond_bubble who wrote (53794)	2/14/2006 4:29:01 AM
From: shades	Respond to of 110194

1) Default on the debts - which causes total debt to fall. & 2) Devaluation of the Debt value i.e devaluation of the "currency" in which the debt is represented. In Japan they still have lots of bad loans on the books right? Did thier currency take a big fall? I know thier real estate and stock market did.

To: bond_bubble who wrote (53794)	2/14/2006 7:57:37 AM
From: russwinter	Respond to of 110194

deflation in stocks, bond and house prices and not so much price fall in the essentials. Is this your expectation as well?> Yes, that's close. There would be a diminishment of demand generally, that would cool prices, and that will depend on the severity of the downturn. But credit conditions will be so poor that almost all bonds, even high grade will lose value. The key term is debt deflation. I find it interesting that people just keep spending, borrowing and consuming despite clear and present danger that the housing as ATM gambit is falling apart. rasmussenreports.com Charles Kindleberger mentioned this in one of his early editions, called it "loading" (inability to voluntarily give up one's standard of living). My mortgage broker friend calls it a sense of entitlement, they just go into denial about what's happening around them, and have an unbalanced view of debt (something that just automatically gets wiped out by 13% annual house price increases). The notion that the exact opposite is going to happen isn't even a possibility in their minds. They have an altered reality. idorfman.com Basically they tune it out. Psychologically this is an interesting period. Surely there must be some consumption fall at the margin, but I think the event that ends it all will come when the enablers (lenders) suddenly tighten up their standards. That will happen when they realize their assumptions about credit conditions are way too benign. I don't really see Joe Six or Riskloves changing behavior until the punch bowl has been almost completely and suddenly removed.