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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 (94193)	5/13/2008 6:27:04 PM
From: benwood	Read Replies (1) \| Respond to of 110194

I agree that the ingredient most likely to prevent a deflationary bust is external forces... West is basically arguing that the rest of the world will join forces (through printing operations) and thus help to create a deflationary bust (if I interpret his comments correctly). I disagree for Americans and believe that there's simply not time for other nation's wanna be reckless behavior to catch up to our own to create that sort of synchronized event. So instead Americans for the most part will have a collapsing standard of living (accelerated from the status quo of a diminishing standard of living for the past 20 years). Yes it will affect our international suppliers, but much less so that even ten years ago. So as a result, we'll have the destruction of fictitious capital (as Russ appropriately calls it) which was masquerading as money but the rub is the collapse in the dollar and the commensurate escalation in import prices. All one has to do is compare the oil price chart and the dollar chart, a near perfect inverse relationship for the past 2 years, to see this effect. I don't really know what to label our upcoming bust, but perhaps just "bust" is all one needs to call it. Some of the effects of a depression will be evident (no pricing power, some falling prices, many corporations going BK) yet the stuff we need like energy and food will take a drastically larger share of our income. And taxes. It doesn't matter how little our capacity to afford those items is -- they will go up in price anyway (with some ups and downs of course but nothing like what happened in the 30s). Debtors will either feel a lot of pain (through lower employment, stagnant wages) and/or will see much transferred to taxpayers which in turn will shake the foundations of gov't (I think) as the cancer metastasizes. Lower home prices have been a harbinger of less discretionary spending. That is a deflationary headwind... not nearly enough to lead to deflation. And a collapse in home prices has a fixed effect for the most part since people who have fairly recent mortgages can erase the negative equity and start over. I don't want you to confuse my feeling 'irked' at so many discussions regarding the dictionary definition of 'inflation' -- I have agreed with nearly all the points you've brought up over the past weeks and months and share your frustration at seeing the train wreck unfold with so many ignorant (or willfully dangerous) participants. But I am less sure of the ultimate endgame (e.g. 5 years out). I continue to lack a handle on where this will lead... I mostly think it will lead to the unexpected.

To: GST who wrote (94193)	5/13/2008 9:02:18 PM
From: John Vosilla	Read Replies (2) \| Respond to of 110194

'It is ignorance to say that lower asset prices are a harbinger of deflation -- they are not. The reason for this is in plain view -- we finance our lifestyle by borrowing against or by sale of our assets. If our assets are worth less then we will pay more to get others outside the US to hand over their goods in return for our assets. Houses are a measure of our asset values. In the end, the dollar is the ultimate measure of our assets. Assets down, prices up -- that is the inflationary cycle we are in, and it is not at this stage a matter of printing money, although that could throw more fuel on the fire.' I think you must distinguish between hard assets and financial assets.. One is going up the other down over this cycle if what everyone here is saying is the future.. Acceleration of global monetary expansion by our partners might support the dollar but fuel further inflationary pressures.. Also look at the inflation problem in many countries with strong currencies of late so we can't isolate our problems as just a weak currency and our twin deficits though obviously when the general marches to a certain drum the soldiers do follow.. Housing must start appreciating in a major way on the back side of this bust and long term rates must rise dramatically if this inflation story is for real.It is complicated and though no one knows the answer for sure I bet we are closer to the truth here on this board than most anyplace else.. I find it ironic J6P will only be able to survive loss of purchasing power this coming cycle by owning property yet this phoney credit juiced bubble and now bust has in essence confiscated any potential wealth the masses could accumulate transferring even more wealth to the privileged few..