[Zentric]

$this->bbcode_second_pass_quote('FoxV', 'T')he big problem I see with this bailout plan is that the amount of subprime loans are in the Trillions. Where the hell is a government that is already 1 Trillion a year in debt going to get the "legitimate" money for this. Sure they could just roll out the printing press, but it will reek of fresh ink will reach from here to Shanghai.

[IslandCrow]

$this->bbcode_second_pass_quote('Zentric', ' ')if you're a really big debtor, put your hat back on, start strutting, and threaten Armageddon.

[pea-jay]

Count me in on the deflation camp. The government's hands are so tied financially it's doubtful any bailout package will make it out of congress (if it can get moving faster than the unwinding of the realestate market will proceed). Credit will get tighter and money will evaporate as economic activity quiets. Deflation solves the energy dilema pretty well, since a dying economy uses less energy so it doesnt matter so much that all of the major oil producing nations have slipped into decline. Deflation is unacceptable elsewhere though as it makes lending practically impossible (not to mention repayment of existing loans). It also removes the growth incentive since people will wait till tomorrow if they know it will be cheaper, or their savings will go further. I fully expect the government will make a real go at reinflation though at this point I havent thought how that will play out.

[Kingcoal]

Inflation of oil/NG and everything affected by it and deflation of the rest. I think that Real Estate will deflate, it needs the support of the local economy which will fail due to high energy prices.

[Kris]

There will be no deflation. If a deflation took hold (a reduction in the supply of money) the level of debt default would be astronomical. As more debt was defaulted up and fiats became harder and harder to come by people would loose confidence in the currency. The currency is a debt note, your cash is someone elses liability. When that liability is defaulted upon your note becomes worthless. As that happens prices for goods would start rising as people rushed to get rid of their paper. I'm voting for the end of paper currencies... inflation... till the people are crazy to try it again in anther hundred years.

[Prince]

$this->bbcode_second_pass_quote('FoxV', 's')aving Welfare moms from getting kicked out of their $300K 500sqft condo will just be the excuse to drop a nice big pallet of cash on the person's mortgage holder

if they really wanted to bailout the borrowers, they would change the bankruptcy laws to make it easier for them to dump their debt and start over.

What are the odds of that happening

[Concerned]

$this->bbcode_second_pass_quote('Prince', '')$this->bbcode_second_pass_quote('FoxV', 's')aving Welfare moms from getting kicked out of their $300K 500sqft condo will just be the excuse to drop a nice big pallet of cash on the person's mortgage holder

if they really wanted to bailout the borrowers, they would change the bankruptcy laws to make it easier for them to dump their debt and start over.

What are the odds of that happening

[MOCKBA]

$this->bbcode_second_pass_quote('Kris', 'T')here will be no deflation. If a deflation took hold (a reduction in the supply of money) the level of debt default would be astronomical. As more debt was defaulted up and fiats became harder and harder to come by people would loose confidence in the currency. The currency is a debt note, your cash is someone elses liability. When that liability is defaulted upon your note becomes worthless.

[mmasters]

$this->bbcode_second_pass_quote('Kris', ' ')The currency is a debt note, your cash is someone elses liability. When that liability is defaulted upon your note becomes worthless.

[threadbear]

When Argentina had their banking fiasco, and currency collapse, prices sure didn't fall, they skyrocketed, supply was constrained and demand fell because there was hardly any available money for anything. Prices rose but real estate prices fell.

[tugboat]

Would anyone care to summarize how they would invest $500,000 (or any $$ amount) in each of the scenarios - deflation, stagflation and hyperinflation ? For the "where to invest" challenged (myself) - sometimes the more I read - the more confused I become.

[mmasters]

For Hyperinflation, Staginflation: gold, hard assets

For Deflation: cash

[hope_full]

Reading through many older posts on this board, I'm well-nigh dazzled with the prognostications offered here. So, I'm asking now - do you think the American currency will go to hyperinflation or deflation?

And am I right that hyperinflation is good for folks deep in debt? And who is deflation good for???

Thanks for any insights.

[MrBill]

Deflation is good in the sense that it returns the price of assets back towards their fair value, however you might like to define that - historical average, price to earnings ratio, relative value, etc. - which is very good if asset prices have become too expensive relative to wages for example.

Unfortunately, the flipside of deflation is often high unemployment, slow growth and making debt more expensive and harder to repay in real terms. The goal should always be sustainable economic growth that is neither inflationary nor deflationary, but based on increases in productivity.

[phaster]

$this->bbcode_second_pass_quote('tugboat', 'W')ould anyone care to summarize how they would invest $500,000 (or any $$ amount) in each of the scenarios - deflation, stagflation and hyperinflation ? For the "where to invest" challenged (myself) - sometimes the more I read - the more confused I become.

[mattduke]

I confess I have no idea where you guys are getting the idea that we are going to have deflation. Once the dollar goes to zero, it ain't coming back.

[mattduke]

And to think I thought the inflation/deflation debate was settled years ago....

[FloridaGirl]

I think we'll have both at the same time. We already do now but in a much smaller scale than it will be.

We can see deflation in the price of homes, businesses, large vehicles, construction equipment, job losses and many stocks and an increasing number of bonds.

On the inflation side we have gas, electricity, food, clothing, insurance (driven up by disasters), etc.

For the future, I think we (US in particular) are going to have a systemic collapse. Bernanke has admitted that he had to rescue Bear Sterns to prevent systemic collapse. The investment banks and commercial banks are all tied together so the fall of a critical domino bank can take out almost the whole set.

There are so many possibilities that can trigger the collapse, it is quite scary. The following is a more complete list of dominoes I see.

End of the petro-dollar (more oil exporters won't accept the dollar)
Loss of faith in the dollar (those holding mega dollars such as oil exporters and China start trading them for other currencies in a panic)
Loss of faith in the US Treasuries (similar to the dollar above, the US has been spending more than it produces for years, would you loan to someone like that?)
Large bank failure
Large investment bank failure
Even more massive residential foreclosures (they have been accelerating at a high rate)
Many commercial foreclosures
Stock market crash
Bond market crash
Massive credit card defaults
Sharply higher oil prices
Fuel shortages
Electricity black outs
Inability to obtain loans (mortgage, credit card, student loans, business loans)
Large business failures
Even more climate change disasters (floods, hurricanes, fires, drought, etc.)
Collapse of the derivatives (said to be hundreds of trillions of dollars, more than the value of most everything on Earth)

I think many of these will happen all at once, feeding upon one another. You can find data and excellent references for most all of this in Housing & Financial Collapse Thread

Imagine, the banks collapse, your money in the bank is gone (the FDIC has less than 1.2% of reserves for what it insures), businesses have lost their money in the bank as well. Businesses have no money to pay their employees so employees stop working (deflationary). The Fed and Treasury will start creating massive amounts of money (electronic and physical), because they are broke already, to try to get things going again (inflationary). As the dollar rapidly loses value, oil exporters, China, India, etc. will refuse to accept the dollar and will dump their Treasuries (inflationary). Suddenly, the US imports will be limited to our exports causing an immediate and drastic oil and natural gas shortage. Things we no longer manufacture in the US will skyrocket in price or will be totally unavailable.

I could go on and on linking in all of the other items in my list.

Looking at the above, it appears to be mostly inflationary, but the huge size of the derivatives means their collapse will take a lot of money out of this world.

These pains will be felt all over the world, I just think it will be worse for the US because we are so fossil fuel dependent.

[AlterEgo]

$this->bbcode_second_pass_quote('mattduke', 'A')nd to think I thought the inflation/deflation debate was settled years ago....

[mos6507]

I'm with Revi on this. Anything you pay for other than homes and SUVs are going to get more expensive by virtue of the tumble of the dollar and the rise in oil. I expect a glut in used items as people sell everything they've got to keep their head above water. But new stuff will get more expensive. Some items have resisted that upward pressure for some time, though. Like look at the new $200 IPhone or the EEE PC and derivatives. High tech is unique in the way it's been able to consistently cost reduce. How much longer it will be able to carry that on, I don't know.