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To: semantic
They leveraged the leverage on the previously leveraged loans. When the main supports fell out, the whole house of cards fell.

Hyper-inflation is still on the horizon. Printing more bills for wealth that doesn't exist, and never existed in the first place, ensures this. Bank on it...

188 posted on 01/28/2009 8:43:24 AM PST by Dead Corpse (What would a free man do?)
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To: Dead Corpse; Lurker; Toddsterpatriot; Travis McGee
Hyper-inflation is still on the horizon. Printing more bills for wealth that doesn't exist, and never existed in the first place, ensures this. Bank on it...

Friedman thought the Depression could have been averted via monetary policy. But as we have found out, pursuing a zero interest rate policy (ZIRP), reducing reserve requirements to practically nothing, and pumping add'l $trillions into the money supply (as described in my prior posts) hasn't really done a thing.

That's because Milton discounted psychology, as is measured by the velocity of money (propensity to spend). To use your printing dollar bills analogy, what do you think most people would do if they were magically given an add'l $500? Go out and spend it, or put it under the mattress? Right now, the global sentiment is to put it under the mattress. This is negative velocity when everyone is hoarding.

Hyper-inflation requires a wage-price spiral, but as unemployment heads towards 20%, how does one get wages to follow price increases? Especially with 20m illegals willing to do whatever it takes as long, as they don't have to return to Mexico where it's worse (and getting even worse).

If the economy started to recover and the Fed continued its current policies, sure, we'd have inflation. But they won't - they would immediately start contracting the money supply using the reverse of what I have described. But until asset prices begin to climb, we're in no danger of that occurring any time soon.

For the record, I believe we're in for a 10-15 yr Japan like experience. No matter what monetary & fiscal measures are employed, until there is some fundamental demand driver, over-valued asset prices (ie housing) will continue to decline over the next 5 years until they reach some sustainable rate of affordability.

190 posted on 01/28/2009 9:16:26 AM PST by semantic
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