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

To: dpl who wrote (71376)	10/7/2006 10:55:49 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

I don't want to get into yet another inflation/deflation debate but a credit bubble is very basic. Creating(inflating) a credit bubble is inflationary.After all you are creating huge amounts of credit.This credit has to bid the price of something up.If an asset is part of the bubble then most of the "inflation" goes into the price of that and less into the CPI. Destroying(deflating) a credit bubble is deflationary.You are destroying vast amounts of credit.If an asset is part of the bubble then it takes most of the hit in prices.If an asset feeds a lot of the credit into the general econ, like RE does,then you will get a lot of deflation in the CPI also. WHEN the RE bubble pops, and unless something weird happens to keep the credit bubble inflating, you will get CPI deflation very quickly.The retail side will be forced sell things below cost. Bingo. The debate SHOULD be on whether or not that happens. Instead the debate is centered around prices, the dollar, the deficit, and other things that are SECONDARY to the implosion of a credit bubble. A credit bubble implosion IS deflationary and there should be no question about that. Unfortunately there is. Mish

To: dpl who wrote (71376)	10/8/2006 3:26:51 AM
From: TimbaBear	Read Replies (2) \| Respond to of 110194

I don't want to get into yet another inflation/deflation debate but a credit bubble is very basic. I have never argued that we will not have a credit collapse, how could we not? What I have questioned is what will its impact be on the USD having reserve status, and what will a slowing US economy do to the appetite of foreigners to buy $3 Billion USD worth of our debt every single day. I have no doubt that consumption will slow, but do not believe that in all cases when it does that deflation must follow. If the costs of imports rises, the costs of those at retail won't be able to be lowered no matter how slow business might be. If the cost of imports and the rates of interest rise, that is even more likely to result in rising prices right when the theories say they should be falling. If the Fed pumps a lot of money into the economy (out of helicopters, so to speak) more inflation still. Unlike many of the dyed-in-the-wool deflationists who seem to have a whole lot of personal something or other at stake, I remain agnostic. I am only interested in trying to see what really is happeneing as clearly as I can, not how I might want it to be and not how it was some other times. It could be that the outcome will indeed be deflation, but I see absolutely no signs of it being allowed to occur. Until I do, I like to be aware of some of the textbook possible outcomes, but think I'll still keep my eyes open just in case.... Timba