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

To: bart13 who wrote (88547)	11/6/2007 5:09:50 PM
From: GST	Read Replies (3) \| Respond to of 110194

Thanks -- the Fed is terrified of the gigantic credit contraction that is plain for all to see -- that much seems certain. It is also fairly plain that they are willing to aggressively ease in the face of a white hot global economy and plenty of signs that inflation is spiralling out of control. Easier money is not likely to do much more than send inflation through the roof -- and here you have the feedback loop to money supply. So why do they fear a credit contraction so much that they are willing to risk runaway inflation? In my view, they are afraid of a credit contraction because we are an economy that is fueled by cheap credit, and a cut-off of the oxygen that finances our debts would be catastrophic for the dollar. They are damned if they do and damned if they don't. So they are betting that loose monetary policy will keep the dollar from "crashing" the way a credit crunch would. Instead, the dollar will "drift" lower -- drift is too kind a word -- and allow inflation to wipe out a major portion of our debt in relative terms. In other words, they are doing a controlled default on our global debt. In a controlled default they get bad inflation. In a credit crunch they get a dollar free fall and even worse inflation. Neither is great, but the controlled default allows the game to go on.