Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Little Joe who wrote (109224)	10/18/2010 3:25:20 PM
From: clochard	Read Replies (1) \| Respond to of 110194

As banks are only lending to people who are not risky, deflation will remain a real scenario. Only by defaulting en masse will America remain solvent.

To: Little Joe who wrote (109224)	10/18/2010 4:41:02 PM
From: GST	10 Recommendations Read Replies (4) \| Respond to of 110194

You are stuck on the exact point that confounds so many -- how can we have inflation when people do not have money? Issuing debt does not change anything, because people do not end up having more money as a result. Ahhh, if only this were true. Here is the reason that is not true: We buy what we consume on global markets. We buy on credit. But we cannot pay the bill at the end of the year. Normally this would mean you go bankrupt. But not to worry -- we can borrow more money to make payments on what we owe -- but with a caveat. We can only borrow more to make payments on what we owe if somebody will lend us the money -- and alas, there is not enough money to lend to us to make this work. But do not worry -- we have an answer for that too! We will lend ourselves the money to make payments on our debt! Brilliant -- except we have no money to lend to ourselves -- oops, that could be a deal breaker. But we have an answer for that as well -- the magic of central banking! We will ask one branch of our government to issue new debt and then we will ask another branch to buy the debt -- what genius!!!!! By doing this we can endlessly lend ourselves the money to make payments on our international loans simply by pretending we have the money -- of course all we are doing is adding zeros to our accounts, but to the untrained eye it will look just like real money!!! Then we use the newly minted money to buy more stuff -- and of course we will continue to spend more than we earn on international markets -- think trillions of dollars -- so we will need to convince people to take trillions of these new magic dollars in coming years without so much as thinking about what we are doing to them. If only they could return the favor by sending us imaginary oil and other stuff. But they will be asked to send us real stuff in exchange for our pretend stuff -- not easy to do forever. The net result -- prices for what we buy in global markets will soar. That is where you will see inflation come flooding into our economy. You will not be buying more -- you will buy less and it will cost you more. Every year you will pay more and more for less and less. And don't count on being paid more -- at least not enough to even come close to making up the difference. It is 100% impossible to understand our situation without understanding our international balance of payments accounts. Once you understand our international accounts you will understand why, unlike Japan, our impending poverty will unfold in a context of inflation rather than deflation. Yes, we will be poor. But we will be poor because the currency in which we are paid and in which we issue our debt has become worthless paper -- worthless in the eyes of the international markets on whom we depend for our very existence these days. And it will become worthless because printing money is the only way we can even pretend to have the money to pay what we owe and buy what we need. All of this would be painfully obvious if only most of us had spent part of our lives in a third world country with a gigantic current account deficit.