no_vaseline_IHB
New member
Phew. I thought last time I fell down I really cracked my egg and some ran out. Thank you for your response.
In/Deflation Debate Summed Up
- Thread starter matt138_IHB
- Start date
ukyo116_IHB
New member
[quote author="awgee" date=1253225085]Exactly and who are those hedge funds?</blockquote>
My educated guess is some very well connected and supplied shell company of prominent financial institutions.
[quote author="awgee" date=1253225085]
Hilariously, the Fed is buying back treasuries from the dealers at POMO, just weeks and somtimes days after the auctions.
And the Fed is exchanging treasuuries for agency debt with other central banks.
Can you imagine if Ron Paul's bill goes through and we get to see what is on the Fed's books?</blockquote>
Ron Paul's bill should have been passed a decade ago. It is already at the point of no return. Swapping US treasuries for garbage paper is a recipe for disaster.
My educated guess is some very well connected and supplied shell company of prominent financial institutions.
[quote author="awgee" date=1253225085]
Hilariously, the Fed is buying back treasuries from the dealers at POMO, just weeks and somtimes days after the auctions.
And the Fed is exchanging treasuuries for agency debt with other central banks.
Can you imagine if Ron Paul's bill goes through and we get to see what is on the Fed's books?</blockquote>
Ron Paul's bill should have been passed a decade ago. It is already at the point of no return. Swapping US treasuries for garbage paper is a recipe for disaster.
awgee_IHB
New member
[quote author="BondTrader" date=1253237688]
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.</blockquote>
Can I disagree without being argumentative? Or maybe put out a different point of view for consideration.
I do not think Bernenke can or will be able to do the right thing.
Credit is contracting, (real deflation), and if B-52 Ben were to stop printing, ..., well the economy built on government debt will collapse.
Doing the right thing entails exposing the emperors nakedness. JPM, GS, BofA, C, and others would be shown to be insolvent. All the bad money, (AIG, FNM, Freddie Mac, GM, Chysler, GE, etc.), being propped up right now at the expense of the the good money, would be Chapter 11.
In a fiat monetary system with a fractional reserve banking system, constant and endless inflation is necessary to keep the economy from collapsing. It is past the point of no return. The national debt and deficit can not be paid without printing more and more and more. The punchbowl can not be removed.
There is only one road left.
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.</blockquote>
Can I disagree without being argumentative? Or maybe put out a different point of view for consideration.
I do not think Bernenke can or will be able to do the right thing.
Credit is contracting, (real deflation), and if B-52 Ben were to stop printing, ..., well the economy built on government debt will collapse.
Doing the right thing entails exposing the emperors nakedness. JPM, GS, BofA, C, and others would be shown to be insolvent. All the bad money, (AIG, FNM, Freddie Mac, GM, Chysler, GE, etc.), being propped up right now at the expense of the the good money, would be Chapter 11.
In a fiat monetary system with a fractional reserve banking system, constant and endless inflation is necessary to keep the economy from collapsing. It is past the point of no return. The national debt and deficit can not be paid without printing more and more and more. The punchbowl can not be removed.
There is only one road left.
ukyo116_IHB
New member
[quote author="no_vaseline" date=1253231046]
The Fed ran the Federal Funds rate to nearly 20% in the early 1980?s to bust inflation. Whats to stop them from doing it this time, and whats to stop it from working again?</blockquote>
I view it this way. Foreigners hold a lot of our debt. Most likely not at 20% interest. Raising it to that would wipe out their holdings and make our relations very unfavorable.
Isn't the option-ARM reset also right around the corner? I would think a 20% rise in the FF Rate would absolutely destroy the housing market. And trigger OTC derivative trades that will make the Lehman's debacle look like a walk in the park.
And any company that had a financial division that dealt with interest rate swaps and traded out of variable rate to fixed would also get demolished on their realized losses.
The Fed ran the Federal Funds rate to nearly 20% in the early 1980?s to bust inflation. Whats to stop them from doing it this time, and whats to stop it from working again?</blockquote>
I view it this way. Foreigners hold a lot of our debt. Most likely not at 20% interest. Raising it to that would wipe out their holdings and make our relations very unfavorable.
Isn't the option-ARM reset also right around the corner? I would think a 20% rise in the FF Rate would absolutely destroy the housing market. And trigger OTC derivative trades that will make the Lehman's debacle look like a walk in the park.
And any company that had a financial division that dealt with interest rate swaps and traded out of variable rate to fixed would also get demolished on their realized losses.
BondTrader_IHB
New member
[quote author="awgee" date=1253240980][quote author="BondTrader" date=1253237688]
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.</blockquote>
Can I disagree without being argumentative? Or maybe put out a different point of view for consideration.
I do not think Bernenke can or will be able to do the right thing.
Credit is contracting, (real deflation), and if B-52 Ben were to stop printing, ..., well the economy built on government debt will collapse.
Doing the right thing entails exposing the emperors nakedness. JPM, GS, BofA, C, and others would be shown to be insolvent. All the bad money, (AIG, FNM, Freddie Mac, GM, Chysler, GE, etc.), being propped up right now at the expense of the the good money, would be Chapter 11.
In a fiat monetary system with a fractional reserve banking system, constant and endless inflation is necessary to keep the economy from collapsing. It is past the point of no return. The national debt and deficit can not be paid without printing more and more and more. The punchbowl can not be removed.
There is only one road left.</blockquote>
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
Let me clarify what I meant by "Doing the right thing", I'm just saying eventually Big Ben will be forced to raise rate as fast as he dropped it.
Personally, doing the right thing will mean the following and you are absolutely right we are not going to do any of those soon enough...
1. Tell everyone we fxxked up, we can't pay back those trillions of debt we sold, and we need to restructure.
2. Stop printing billions every week.
2. Raise the rate back up now to save the dollar from collapsing.
3. Reinstate market to market accounting rule immediately.
4. Aduit the Fed.
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.</blockquote>
Can I disagree without being argumentative? Or maybe put out a different point of view for consideration.
I do not think Bernenke can or will be able to do the right thing.
Credit is contracting, (real deflation), and if B-52 Ben were to stop printing, ..., well the economy built on government debt will collapse.
Doing the right thing entails exposing the emperors nakedness. JPM, GS, BofA, C, and others would be shown to be insolvent. All the bad money, (AIG, FNM, Freddie Mac, GM, Chysler, GE, etc.), being propped up right now at the expense of the the good money, would be Chapter 11.
In a fiat monetary system with a fractional reserve banking system, constant and endless inflation is necessary to keep the economy from collapsing. It is past the point of no return. The national debt and deficit can not be paid without printing more and more and more. The punchbowl can not be removed.
There is only one road left.</blockquote>
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
Let me clarify what I meant by "Doing the right thing", I'm just saying eventually Big Ben will be forced to raise rate as fast as he dropped it.
Personally, doing the right thing will mean the following and you are absolutely right we are not going to do any of those soon enough...
1. Tell everyone we fxxked up, we can't pay back those trillions of debt we sold, and we need to restructure.
2. Stop printing billions every week.
2. Raise the rate back up now to save the dollar from collapsing.
3. Reinstate market to market accounting rule immediately.
4. Aduit the Fed.
awgee_IHB
New member
[quote author="BondTrader" date=1253244080]
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
</blockquote>
True, but with some I am outclassed and find it necessary to be nice in my counterpoint so as not to have my ___ handed to me on a platter when I am wrong.
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
</blockquote>
True, but with some I am outclassed and find it necessary to be nice in my counterpoint so as not to have my ___ handed to me on a platter when I am wrong.
BondTrader_IHB
New member
[quote author="awgee" date=1253246486][quote author="BondTrader" date=1253244080]
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
</blockquote>
True, but with some I am outclassed and find it necessary to be nice in my counterpoint so as not to have my ___ handed to me on a platter when I am wrong.</blockquote>
Lol, I know and agree we shall respect others' opinions and be open minded. Some just take it way too serious or try to prove they are way smarter than anyone else. We are all here to help each other and learn from each other. No need to get personal at all. I'm more than happy to hear the other side of the story,
Thanks for the feedback, that's the whole purpose of debating, if we all agree with each other 100%, then where is the fun?
</blockquote>
True, but with some I am outclassed and find it necessary to be nice in my counterpoint so as not to have my ___ handed to me on a platter when I am wrong.</blockquote>
Lol, I know and agree we shall respect others' opinions and be open minded. Some just take it way too serious or try to prove they are way smarter than anyone else. We are all here to help each other and learn from each other. No need to get personal at all. I'm more than happy to hear the other side of the story,
FairEconomist_IHB
New member
<blockquote>The Fed can not price anything above free market rates.</blockquote>
Not in the long-term but markets can be heavily manipulated and profoundly irrational for years (housing, iron, many stock markets) - and the Fed has the institutional, reputational and financial wherewithal to manipulate on a massive scale. Plus, it has cozy relationships with JPM and GS.
Not in the long-term but markets can be heavily manipulated and profoundly irrational for years (housing, iron, many stock markets) - and the Fed has the institutional, reputational and financial wherewithal to manipulate on a massive scale. Plus, it has cozy relationships with JPM and GS.
matt138_IHB
New member
Punch Bowel. Mmmmmmmmmmmm Awgee.
No_KY brings up very convincing points but I think the gov't will fight rate hikes tooth and nail and in that window, gold profits will be had. Definitely speculation but hoarding dollars is an extended game of russian roulette.
Goldman hires smart, rich college kids who are spoonfed the same propaganda as everyone else (college econ classes), they've just learned how to lever up/manipulate really well along with the government. There are times when things get out their control. Smart rich college kids can be dangerous.
Have they been caught with their pants down before? Won't be the last time.
When you say gold "fundamentals", does that mean all the $ in the US divided by all the gold? or is it inflation projected values? Not being sarcastic here just cromag curiosity.
And No_KY is right, high interest rates definitely curb inflation and reduce demand for gold. This will happen.
This is one hell of a debate. 95% of people don't debate like this.
No_KY brings up very convincing points but I think the gov't will fight rate hikes tooth and nail and in that window, gold profits will be had. Definitely speculation but hoarding dollars is an extended game of russian roulette.
Goldman hires smart, rich college kids who are spoonfed the same propaganda as everyone else (college econ classes), they've just learned how to lever up/manipulate really well along with the government. There are times when things get out their control. Smart rich college kids can be dangerous.
Have they been caught with their pants down before? Won't be the last time.
When you say gold "fundamentals", does that mean all the $ in the US divided by all the gold? or is it inflation projected values? Not being sarcastic here just cromag curiosity.
And No_KY is right, high interest rates definitely curb inflation and reduce demand for gold. This will happen.
This is one hell of a debate. 95% of people don't debate like this.
ukyo116_IHB
New member
[quote author="matt138" date=1253257820]
When you say gold "fundamentals", does that mean all the $ in the US divided by all the gold? or is it inflation projected values? Not being sarcastic here just cromag curiosity.</blockquote>
From Jim Sinclair (edited) (<a href="http://www.financialsense.com/transcriptions/2002/Sinclair.html">http://www.financialsense.com/transcriptions/2002/Sinclair.html</a>)
1. The US Current Account must be in a Deficit position and growing. Yes, this is a present condition and shows no fundamental signs of reversing for a significant time. This is the account that measures the amount of US dollars in the hands of non-US entities. It is usually invested primarily in US Federal Debt instruments.
2. An intact negative trend in the US Dollar overall must exist. It should have the characteristics of a bear market. This is in fact true for the US Dollar today. We have a classic long-term top called a Head & Shoulders formation, which was subsequently confirmed by price and volume action. Even the dollar bulls now are looking only for the dollar to stabilize at lower levels. This criterion is in place for a long-term bull market in gold.
3. The general commodity market is showing in many ways, both fundamentally and technically, that it is in a base formation from which one can expect higher prices.
4. Trust in paper assets must be waning for gold to assume an investment role internationally.
5. The momentum in the appreciation of the bond market must be decelerating. We see this ingredient as positive now to a long-term bull market in gold.
When you say gold "fundamentals", does that mean all the $ in the US divided by all the gold? or is it inflation projected values? Not being sarcastic here just cromag curiosity.</blockquote>
From Jim Sinclair (edited) (<a href="http://www.financialsense.com/transcriptions/2002/Sinclair.html">http://www.financialsense.com/transcriptions/2002/Sinclair.html</a>)
1. The US Current Account must be in a Deficit position and growing. Yes, this is a present condition and shows no fundamental signs of reversing for a significant time. This is the account that measures the amount of US dollars in the hands of non-US entities. It is usually invested primarily in US Federal Debt instruments.
2. An intact negative trend in the US Dollar overall must exist. It should have the characteristics of a bear market. This is in fact true for the US Dollar today. We have a classic long-term top called a Head & Shoulders formation, which was subsequently confirmed by price and volume action. Even the dollar bulls now are looking only for the dollar to stabilize at lower levels. This criterion is in place for a long-term bull market in gold.
3. The general commodity market is showing in many ways, both fundamentally and technically, that it is in a base formation from which one can expect higher prices.
4. Trust in paper assets must be waning for gold to assume an investment role internationally.
5. The momentum in the appreciation of the bond market must be decelerating. We see this ingredient as positive now to a long-term bull market in gold.
matt138_IHB
New member
[quote author="no_vaseline" date=1253184860][quote author="awgee" date=1253173672]
And to answer your other question, when the Treasury bubble breaks, gold will go higher.</blockquote>
When the treasuary bubble breaks, won't the treasuary be forced to raise rates?</blockquote>
Awgee, will repatriation of US dollars cause gold to go higher when the T bubble pops(aka foreigners buying everything in sight here)?
20% interest rates would stop this. However, to what magnitude would this F the economy?
And to answer your other question, when the Treasury bubble breaks, gold will go higher.</blockquote>
When the treasuary bubble breaks, won't the treasuary be forced to raise rates?</blockquote>
Awgee, will repatriation of US dollars cause gold to go higher when the T bubble pops(aka foreigners buying everything in sight here)?
20% interest rates would stop this. However, to what magnitude would this F the economy?
awgee_IHB
New member
OMG. I just got No_KY. LOL
It sounds like you think higher interest rates curb inflation. Volker raised rates and sucessfully brought inflation down.
Will it work again? I dunno, but I kinda doubt it. I think the amount of currency that has been printed is so great the interest on the debt will so great when the short term debt is rolled over, that interest rates will rise through the free market and it will make no diff in price inflation. Just my opinion.
And I do not think Bernanke has the cajones to raise rates significantly, at least not enough to make a difference.
It sounds like you think higher interest rates curb inflation. Volker raised rates and sucessfully brought inflation down.
Will it work again? I dunno, but I kinda doubt it. I think the amount of currency that has been printed is so great the interest on the debt will so great when the short term debt is rolled over, that interest rates will rise through the free market and it will make no diff in price inflation. Just my opinion.
And I do not think Bernanke has the cajones to raise rates significantly, at least not enough to make a difference.
matt138_IHB
New member
Cheap money is inflationary. Expensive money is the opposite.
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.
awgee_IHB
New member
[quote author="matt138" date=1253603533]Cheap money is inflationary. Expensive money is the opposite.
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.</blockquote>
When money pours into treasuries, it is usually seen as vote confidence.
But, that confidence depends upon two factors: who is the ultimate purchaser,
and in the case of financial business purchases, it matters why they are purchasing. If to cover losing leverage positions and/or provide collateral, it is not a vote of confidence, but rather an act of desperation.
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.</blockquote>
When money pours into treasuries, it is usually seen as vote confidence.
But, that confidence depends upon two factors: who is the ultimate purchaser,
and in the case of financial business purchases, it matters why they are purchasing. If to cover losing leverage positions and/or provide collateral, it is not a vote of confidence, but rather an act of desperation.
usctrojanman29_IHB
New member
[quote author="awgee" date=1253611242][quote author="matt138" date=1253603533]Cheap money is inflationary. Expensive money is the opposite.
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.</blockquote>
When money pours into treasuries, it is usually seen as vote confidence.
But, that confidence depends upon two factors: who is the ultimate purchaser,
and in the case of financial business purchases, it matters why they are purchasing. If to cover losing leverage positions and/or provide collateral, it is not a vote of confidence, but rather an act of desperation.</blockquote>
I always assumed that a flight to treasuries was do to capital wanting to find a safe haven during economic turmoil as well as the expectation that future inflation will be lower (or deflation will come around). I also understand why the Chinese and Japanese have been net buyers of treasuries (the US is the consumer of their exported goods).
When money pours into treasuries, that is seen as a vote of confidence in the us dollar.
Double digit returns would definitely entice people to buy treasuries.
It would take the political equivalent of a kamikaze jet pilot to raise interest rates to where they should be right now.
Doing that is the best possible thing for our economy and country, but good luck dodging pitchfork weilding lobbyists and voters.</blockquote>
When money pours into treasuries, it is usually seen as vote confidence.
But, that confidence depends upon two factors: who is the ultimate purchaser,
and in the case of financial business purchases, it matters why they are purchasing. If to cover losing leverage positions and/or provide collateral, it is not a vote of confidence, but rather an act of desperation.</blockquote>
I always assumed that a flight to treasuries was do to capital wanting to find a safe haven during economic turmoil as well as the expectation that future inflation will be lower (or deflation will come around). I also understand why the Chinese and Japanese have been net buyers of treasuries (the US is the consumer of their exported goods).
no_vaseline_IHB
New member
[quote author="USCTrojanCPA" date=1253615959] I also understand why the Chinese and Japanese have been net buyers of treasuries (the US is the consumer of their exported goods).</blockquote>
They have to do something to offset the trade surplus, but hey! Don't listen to me. My wife uses this as an avatar:
<img src="http://growabrain.typepad.com/photos/uncategorized/communist.jpg" alt="" />
They have to do something to offset the trade surplus, but hey! Don't listen to me. My wife uses this as an avatar:
<img src="http://growabrain.typepad.com/photos/uncategorized/communist.jpg" alt="" />
awgee_IHB
New member
I am hoping, (maybe against common sense and logic), that the following graphs will illustrate how inflation and deflation can and usually do exist simultaneously and quite probably as a result of one another.
<fieldset class="gc-fieldset">
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awgee_IHB
New member
The following was written
by Doug Noland
As much as I believe Secretary Giethner is speaking earnestly, there is no way at this point government influence in the marketplace can be meaningfully Dialed Back. The damage has been done ? historic distortions to both the financial system and real economy. The damage began with the activist Greenspan Fed manipulating interest rates, promising market liquidity, and pandering to the leveraged speculators. The damage worsened as the government-sponsored enterprises came to dominate our nation?s market for housing finance. And the damage turned unmanageable when the markets listened back in 2002 to Dr. Bernanke profess the virtues of helicopter money and whatever other unconventional measures the central bank might deem worthwhile.
Federal government finance (Treasuries, agency debt and GSE MBS) has expanded about $2.0 TN over the past year. I expect it to inflate another $2.0 TN over the coming twelve months. The private sector Credit apparatus is simply not up to the task of generating the necessary $2.5 TN (or so) of total system Credit expansion necessary to sustain the current economic structure. In this post-Wall Street Bubble environment, only government and government-related Credit retains sufficient ?moneyness? in the marketplace. Systemic reflation today depends on a massive inflation of this government helicopter ?money.?
And the more intense the necessity to reflate - the greater the government?s evolving role throughout both the financial and economic systems. This is a fact of life, human nature and politics. And at the end of the day inflationism tends toward socialism. And there is only one way to reverse this course; it is anything but painless. The economy must be weaned off of Credit and financial excesses and government intrusions ? and allowed to proceed through the arduous task of adjustment and rebalancing. Choosing instead a course of sustaining current financial and economic structures implies a huge and ever-expanding role for the government. Efforts to stoke a quick recovery imply massive government intrusion and inherent fragility. There will be no Dialing Back.
Many hope the private-sector can regroup and again rise to the occasion. It is expected that as recovery gains a foothold private sector borrowing and lending will increase, tax receipts will rise, and the government will enjoy the luxury of Dialing Back as the system normalizes. I don?t expect this dynamic to work as it has traditionally because of the confluence of Bubble economy Credit requirements, acute private sector Credit system impairment and market mistrust, and the government?s predominant influence on the recovery.
The dynamic today is one of a shallow recovery induced by a flood of government borrowing and spending and marketplace intrusions. Rampant financial speculation has reemerged, which leaves the marketplace increasingly vulnerable to any serious move to Dial Back. In a normal recovery, the system tends to gain strength and stability over time. Credit requirements are usually manageable, while speculative excesses have been largely wrung out of the system. In stark contrast, today?s combination of huge Credit expansion and a highly speculative financial backdrop ensures only more acute systemic fragilities over time. And the distorted marketplace will simply not function well at even the notion of fiscal and monetary exit strategies.
Conceptually, somewhere along the line there reaches a tipping point where government intrusions no longer act as a stabilizing force. They become invariably destabilizing, as the quantity of government monetary inflation becomes massive and uncontrollable. This is the nature of inflationism, although this dynamic is nowhere to be found in Keynesian doctrine. It is my view that this tipping point was reached some time back. It is with this analysis in mind that I fear the emerging Government Finance Bubble risks destroying the creditworthiness of our entire economy.
by Doug Noland
As much as I believe Secretary Giethner is speaking earnestly, there is no way at this point government influence in the marketplace can be meaningfully Dialed Back. The damage has been done ? historic distortions to both the financial system and real economy. The damage began with the activist Greenspan Fed manipulating interest rates, promising market liquidity, and pandering to the leveraged speculators. The damage worsened as the government-sponsored enterprises came to dominate our nation?s market for housing finance. And the damage turned unmanageable when the markets listened back in 2002 to Dr. Bernanke profess the virtues of helicopter money and whatever other unconventional measures the central bank might deem worthwhile.
Federal government finance (Treasuries, agency debt and GSE MBS) has expanded about $2.0 TN over the past year. I expect it to inflate another $2.0 TN over the coming twelve months. The private sector Credit apparatus is simply not up to the task of generating the necessary $2.5 TN (or so) of total system Credit expansion necessary to sustain the current economic structure. In this post-Wall Street Bubble environment, only government and government-related Credit retains sufficient ?moneyness? in the marketplace. Systemic reflation today depends on a massive inflation of this government helicopter ?money.?
And the more intense the necessity to reflate - the greater the government?s evolving role throughout both the financial and economic systems. This is a fact of life, human nature and politics. And at the end of the day inflationism tends toward socialism. And there is only one way to reverse this course; it is anything but painless. The economy must be weaned off of Credit and financial excesses and government intrusions ? and allowed to proceed through the arduous task of adjustment and rebalancing. Choosing instead a course of sustaining current financial and economic structures implies a huge and ever-expanding role for the government. Efforts to stoke a quick recovery imply massive government intrusion and inherent fragility. There will be no Dialing Back.
Many hope the private-sector can regroup and again rise to the occasion. It is expected that as recovery gains a foothold private sector borrowing and lending will increase, tax receipts will rise, and the government will enjoy the luxury of Dialing Back as the system normalizes. I don?t expect this dynamic to work as it has traditionally because of the confluence of Bubble economy Credit requirements, acute private sector Credit system impairment and market mistrust, and the government?s predominant influence on the recovery.
The dynamic today is one of a shallow recovery induced by a flood of government borrowing and spending and marketplace intrusions. Rampant financial speculation has reemerged, which leaves the marketplace increasingly vulnerable to any serious move to Dial Back. In a normal recovery, the system tends to gain strength and stability over time. Credit requirements are usually manageable, while speculative excesses have been largely wrung out of the system. In stark contrast, today?s combination of huge Credit expansion and a highly speculative financial backdrop ensures only more acute systemic fragilities over time. And the distorted marketplace will simply not function well at even the notion of fiscal and monetary exit strategies.
Conceptually, somewhere along the line there reaches a tipping point where government intrusions no longer act as a stabilizing force. They become invariably destabilizing, as the quantity of government monetary inflation becomes massive and uncontrollable. This is the nature of inflationism, although this dynamic is nowhere to be found in Keynesian doctrine. It is my view that this tipping point was reached some time back. It is with this analysis in mind that I fear the emerging Government Finance Bubble risks destroying the creditworthiness of our entire economy.