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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 (88550)	11/6/2007 6:04:10 PM
From: bart13	Read Replies (2) \| Respond to of 110194

Generally agreed again, with the exception of the Fed and other central banks "allowing" a crunch for a short time not unlike what occurred in 2001-2. I still think we're in a recession right now. It's interesting how the Fed's bogey man is deflation and the BoJ's is inflation... although both have been and are engines of inflation.

To: GST who wrote (88550)	11/6/2007 6:33:51 PM
From: basho	Read Replies (2) \| Respond to of 110194

GST, I think many use the phrase "debt deflation" in much the same way you're using "credit contraction". Certainly, that's how I interpret it. Thanks for your earlier reply. We obviously agree that in credit based economies, the influences on the relationship between the monetary base controlled by central banks and "money" in the broader sense are highly complex. I think they also frequently work through positive or negative feedback loops depending primarily on sentiment. In a "free banking" specie based financial system, booms and busts certainly still happen (human nature after all doesn't vary all that much), but they, and the credit booms and busts that are their proximate cause, can't "grow to the sky" as ours has done. Fear amongst depositors, and the need for at least some prudence on the part of most bankers since they know there is no one to bail them out, cuts off the boom at some relatively early point. Today, though, the sheer pervasiveness of moral hazard (because of deposit insurance and the growing belief that central banks can always save the day) has removed natural prudence almost entirely. Hence, as you say, we end with the sheer precariousness of the current debt structure (and its monetary mirror image) and the fear that central bankers tend to feel about credit contraction. Those of us who emphasise monetary concerns are I think often concerned with drawing attention to what I've just somewhat simplistically described. Namely, that at the root of this Rube Goldberg financial system is a fundamentally unsound monetary regime. Most of the arguments probably arise because the complexity of the actual mechanisms at work sometimes gets lost in doctrinaire assertions and defenses. Not particularly useful but I guess we all do it at times. You too have sometimes pressed your case pretty relentlessly so it's good to see a collegiate tone coming back into this discussion on all sides. When it comes down to it, after all, each of us is surely just trying to understand things a little better and hopefully see a little more clearly into the future than we would if we didn't drop in here.