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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: jim_p who wrote (10806)	7/17/2008 2:32:21 PM
From: SliderOnTheBlack	Read Replies (4) \| Respond to of 50100

re" ["My guess is the fed will try to avoid deflation by trying to inflate the economy, but the forces of de-leveraging from the two largest bubbles in history will be very difficult to overcome and thus should be bearish for gold."] Jim, Valid points. Bernanke is better known for his now infamous quip about stopping deflation by using the printing press and "dropping money from helicopters" if need be... than anything else he's ever said, or done. Sadly, it isn't quite that easy. If the global economy suddenly rolled over into a deflationary death spiral - how would Bernanke bail us out? With a ZIRP (o% interest rate policy) and tons of liquidity? That didn't help Japan. You can't force people to borrow, when they can't repay what they already owe. Does anyone think we can use another "housing bubble" to bail out the one we just had? Do you think those condo flippers from Miami are going to come running back for a 2nd bite at that rotten apple? ...or, that the banks will ever let them? The US consumer can borrow all the money they want to in this economy. There is no shortage of ready funds for consumers to borrow. There's a solvency problem with the banking system because of all the bad loans they made over the last few years, because of all they leverage they used, and because of all the bad paper they are still holding off their balance sheets. Giving consumers low interest rates will not deleverage, or make solvent the US financial system. Do you think Angelo Mozilo & Company will be allowed to offer those LIAR / NINA loans anytime again soon? And even if they did - that anyone would take them? And how are you going to stimulate housing, if a huge percentage of homes can't be refinanced to take advantage of lower rates because they have negative equity? Millions of homeowners can't sell their homes to buy new homes for the same reason -- negative equity. Not to mention how many millions of US consumers that are going to be taken out of the credit system for 7-10 years because of bankruptcies, and foreclosures that will ruin their credit. Ford, GM, and Chrysler already have 0% financing and rebates, so how will Bernanke stimulate auto sales? Banks must deleverage, and US consumers need to replenish savings. ...and that takes TIME. This is not just a matter of dropping rates, or printing money... it's a matter of TIME! Consumers and banks will need time to deleverage, time to replenish savings, and time to reduce debt. And you don't hear anyone talking about that. Another major problem the US Consumer has going forward is wages and income that aren't keeping up with inflation, let alone the rest of the world. ...and that isn't going to change any time soon either. China, India, and Mexico's population will be a longterm deflationary force upon US wages. The gold bug punditry thinks all of this will be automatic, that Bernanke can just flip a switch, cut rates, and turn on the printing presses. It doesn't, and it won't -- work that way. I think too few gold bugs are real students of the depression, as to what, and more importantly - WHO caused it, and why... and how they did it? And, it's not as if gold hasn't been confiscated from the public in the past. Confiscation risk and worries aside, there is also a huge misconception about gold and deflation that's been passed down to the gold bug faithful. And those misconceptions and myths will end up destroying more wealth among investors in gold, than all the central bank dumping, and manipulation ever dreamed of doing. .. more on that later, at a more appropriate time and place. SOTB