It will no longer matter because the current crisis was triggered by subprimes, which are part of a $500+ derivatives market and a total credit market from which we have Option ARMs and Alt As, whose interest rates may reset soon. Many of these instruments and generally the derivatives market are not regulated by governments.
Bailouts, no bailouts, it won’t matter, either. In order for the U.S. to recover, it has to export heavily and import and spend much, much less, and there will have to be much lower wages in order to keep exports cheap. But if other countries are also faring badly, then no one will buy what is exported. What’s left is to cut down heavily on many expenses and resource use, plant food, localize, etc.
Interesting perspective Gman. I appreciate you sharing your view on what’s going on. Getting caught up in group thinking can happen so easily; it seems like a good idea to at least consider other ways things might be playing out! Thanks.
Good post, Life.
SG
Davos,
Good points from the audio, agree with most but just don’t see a major price inflation in the near term.
Consider the following:
Let's say that money = debt and/or obligations
I think we have been experiencing inflation for decades. We have been experiencing hyperinflation for the last 5 years. Today we have it on steroids. What I see happening is a massive amount of defaults, especially when the counter-parties to derivatives contracts are asked to step up and pay. The result will be the destruction of money. Money via additional debt and printing that we are creating today is nothing compared to what will be lost.
Consider the following, with a couple of excerpts from the article linked below.
Iron Law of the Burden of Debt
“The liquidation value of total debt is inversely proportional to the prevailing rate of interest. In particular, halving the rate of interest by the central bank is equivalent to doubling the liquidation value of total debt. “
“If the interest rate is halved serially by the Fed (which has happened in the past, and may happen again, as interest rates can be halved any number of times without hitting zero or going negative) then, for example, upon a ten-fold serial halving, the liquidation value of the total debt is increased more than a thousand-fold (210 = 1024). This means that trillion is promoted to quadrillion, quadrillion is promoted to quintillion, and so on, in direct consequence of the serial 10-fold halving.”
“The result of the bailouts and stimulus packages will be a vast expansion of government debt, and a serial halving of the rate of interest to accommodate it, followed by the escalation of the liquidation value of total debt to the quadrillion and quintillion dollar range and beyond. Deflation will sweep through the land making prices and wages fall.”
Read the article, it may give additional insight.
http://www.financialsense.com/editorials/fekete/2009/0212.html
Gman- I agree in the sense that that I also don’t see "major price inflation in the near term"