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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (42842)	11/17/2008 4:47:40 PM
From: TobagoJack	Read Replies (1) \| Respond to of 217900

just in in-tray my takeaway, deflation is good, gets everything cheaper, and so sets us up for inflation player 1 Dr Marc -- Something for you when you get the time, and if you think it worthy of a response since your name is specifically mentioned Eric Janszen has you and JR characterized here as inflationists -- I don't see your views strictly in those terms myself, but maybe I'm out-of-date, or maybe Eric is -- if so, perhaps you'd want to correct him I presume you're familiar with Janszen's work -- FWIW he's not in conflict with your views -- rather, his main point is that he thinks the pure deflationists are going to get badly sideswiped down the road a bit, and he also quietly thinks that they're going to be too busy sitting smugly on their treasuries thinking that the credit crisis has passed to see it coming I generally find Janzsen's arguments for a one-two punch (his so-called Ka-Poom Theory) rather compelling, but in many ways it almost seems too obvious, and I continue to wonder if I'm overlooking something Anyways, here's the relevant passage from near the end of his latest piece -- itulip.com "The framework of the inflation versus deflation debate is flawed from our perspective. It comes down to two camps, the inflationists like Marc Faber and Jim Rogers who claim that the US will some day be unable to sell more bonds and will eventually be forced to print money to cover fiscal expenses without issuing new debt. These are the Wiemar inflationists. The deflationist camp is represented best by Roubini who asserts that the US government cannot risk letting the inflation genie out of the bottle via unsterilized money injections and, anyway, such a policy, besides wrecking the reputation of the Fed, will not work to reduce overall debt levels because too much US debt is short term and rates will rise to cause repayment of aggregate debt to skyrocket. Ka-Poom Theory since 1999 occupies a position outside this framework. It asserts that all of the money that the US needs to create monetary inflation that deflates both its external debts and domestic private debts already resides outside the US in the form of more than $13 trillion in gross external debt to the tune of 95% of GDP. Most of that debt is in the form of US treasury bonds. All the US has to do to devalue the dollar is induce its trade partners to sell, perhaps by indicating an intention to monetize debt without actually doing so, causing US creditors to sell some dollar denominated securities for assets not priced in dollars, resulting in an increase in the global supply of dollars. The effect is the same as the US printing money but without a corresponding issuance of new debt and the attendant risk of hyperinflation that Roubini refers to. As the US learned years ago, why devalue your currency when you can get your creditors to do it for you? Nothing halts deflation like the inflation signals that issue forth from rising import prices. Has everyone already forgotten 2002 to 2006 when oil prices increased 300%? Since most US debt is held by central banks, the selling is unlikely to be disorderly. Why risk a runaway inflation if you can turn a knob and order a few percentage points of deflation fighting currency depreciation?" I'm not trying to start another food fight over the inflation/deflation issue, but I'd be curious what you think of the foregoing, and what anybody else thinks of it too for that matter player 2 The present wealth destruction is so huge that we may first have a period during which consumer prices decline. We already had massive deflation in asset prices so I am not sure what Eric is talking about when he calls people inflationists or deflationists. What is his concept of inflation??? But one point ought to be clear: the longer and deeper the recession will be the more fiscal and monetary stimulus will be applied by every central bank. End result: higher prices for everything.