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Bond Market Massacre...

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May 12, 2008 – Comments (3)

Some things people say in their posts just kind of stand out...

This is an interesting post in that it attempts to simplify what the deflationist and inflationist are saying.  I've been in the deflation camp.  Inflation is a measure of the money supply and I do not believe current pricing is a reflection of the current money supply.  I believe the current money supply justifies price increases of 2-300% of consumer goods.  So there will be massive downward valuation of assets, and price increase.  Net is that there will be less (deflation of money supply) but relative prices will be more in balance. 

Reading his post, I have to say I agree on the 10 and 30 year bond market.  I should write more on that...

I am conflicted...  I believe a contraction of money supply through credit contraction -- deflation, at the same time, I think the US dollar will decline further over the longer term, which cause the price of everything to increase.... 

3 Comments – Post Your Own

#1) On May 12, 2008 at 11:34 PM, FleaBagger (29.37) wrote:

But who controls the money supply? The government. And what is their incentive? To reduce the value of their debt with minimum repercussions to their borrowing ability. But as long as they can get away with backing the worst out of inflation, they can protect their borrowing ability and inflate the value out of their debts simultaneously, which I believe they will continue to do at 10-15% over the next few years.

Spending and inflating has repeatedly proven more popular than either cutting spending or raising taxes. Congress is always up for it, Bush has done it, and either McCain or Obama will do it for the next 4 years, at least. So when will the tightening of the money supply come? Only when someone gets elected president on a platform of cutting government welfare programs. Or there could be another Contract With America style congressional takeover, but I'm not holding my breath. We want socialism, and we want to pay for it with borrowing and inflation, and that's what we're going to get.

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#2) On May 13, 2008 at 12:43 AM, QualityPicks (54.81) wrote:

Many people keep arguing on inflation vs. deflation. There are reasons we will have deflation and reasons why we will have inflation. So we will have both. As it normal after a bubble bursts, attempts to inflate end up inflating something else, like food or gas prices. In 2000 attempts to fight the tech bust caused massive housing inflation. In 2008, attempts to fight the housing bust will create inflation in commodities, food, energy, and its suppliers. But housing will continue to deflate.

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#3) On May 13, 2008 at 1:40 AM, EScroogeJr (< 20) wrote:

dwot, the prining presses are running red hot. If the banks that used their fractional reserve capacity to the fullest are getting into a conservative mode, and M3 still shows 20% growth, it can only mean that the Treasury is "printing" money at a rate exceeding 20%. Modest M1 figures should not be fooling anybody: the new liquidity is simply injected into the systsm as a stream of ones and zeros.

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