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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: energyplay who wrote (181298)	2/3/2009 8:17:16 AM
From: ChanceIs	Respond to of 306849

>>>Massive Debt ---> Massive printing ---> Dollar down, everything else up...................................<<< The more I struggle with this "conundrum" (as a former head chair liked to characterize what he couldn't understand), the more I come to realize that the "missing link" is the leverage contraction in the banks - related to the rapid price decline in financial assets (eg stocks, bonds, and yes....CDOs , etc). The FED is printing and that USUALLY is inflationary. But the banks are seeing the market value of their assets drop. In order to maintain equilibrium, and preserve their capital ratios, they have to call in loans or not make new ones when deposits (from the FD0 arrive. So yes....the FED is increasing what I believe is called M0 (cash and demand deposits) but the bank multiplier (ratio of loans to deposits) is shrinking. I don't know where the balance lies. In the short term, I think that the forced liquidations (margin calls to hedge funds and 401(k)s flight to cash, retail investor panic, etc) will continue. This gives the appearance of deflation. We may be having financial asset, automotive and gasoline deflation. We don't seem to be having grocery price deflation. What will happen when the deleveraging ends??? I don't think that we will have inflation until the banks start to make more loans. Are they going to be making more credit card and auto loans??? Seems dicey to me. I will remain in Roubini's camp and espouse his "stag-deflation" concept...a stagnant economy with deflation.