It's Deflation....Demon.......Do you believe....yet?????
July 08, 2008
– Comments (12)
Demon,
I hear all the arguments. Keynes. Printing money. M3...MZM....MMM....AAA...AARP.
I went to college, I got my economics degree, and in the end I might as well purchased a roll of toilet paper with the value of the knowlege I received. I have cross examined economists on the witness stand...at the end of the day they are generally paid shills to craft ends to meet their clients desired outcomes........anyone who spouts off economics as a basis for their investment decisions should be scrutinized immediately.
I try to live in the practical world....over the years it has seved me well but makes me early more times than I would care to remember. I will make this post brief just to answer your question as I could write volumes on the subject.
I define money as wealth/assets, cash in the bank, and access to credit. Each can be converted into money and spent. Right now the Fed is printing money at a rapid rate increasing cash in the bank. However, wealth and access to credit is dropping at a much faster rate than money is being printed.
Not only that, most of the money being printed is going to banks and other financial institutions simply to maintain solvency to offset defaulting debt and not to the consumer
Consequently, the ACCESS to money for most Americans, and many around the world......is shrinking at the fastest rate in human history.
Take a California family who thought he had a million dollars equity in their home a couple years ago with a two million dollar mortage(including a $500K HELOC to improve the house and buy two new luxury cars). Let's also assume that family had a million dollar retirement account and $100K cash in the bank.
A couple years ago the family had a $100K in the bank and a net worth of about $2.1 million dollars. Not bad. Today, if their house has depreciated 50% and their investment portfolio is down 20%........then their net worth has contracted to $400K.
If their investment portfolio continues to fall and/or their house or their house falls in value just 15%....this hypothetical family will soon have no net worth. At that point, the spending of the family will likely tighten further decreasing demand.
The above is playing out around the world right now......wealth is imploding for many day after day......so is their access to credit......as a result spending is decreasing day after day and rising defaults and slowing revenues are the evidence.
If wealth and access to credit continue to fall at a faster rate than money is being printed....I don't care what the economists say....eventually people won't spend, companies will go out of business, jobs will be lost, and prices will fall.
We destroyed the world's economy by issueing too much credit. Many can't afford to service the dept now that they can't borrow to meet obligations. False perceptions of risk were created with SWAPS. Now the unwinding is taking place and the world is freaking out.
That is the two minute summary....I hope it helps.
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