[seahorse2]

Clearly, we are experiencing deflation which could lead to a depression, Bernanke's worse fear. So far, the Fed Reserve has loaned money into the system, arguably, without printing more money, but its not working.

According to this author, just a few weeks ago, the Federal Reserve began a new policy of trying to inflate its way out of this deflation, bringing in the helicopters.

The Great Debate

As the author points out, this method to inflate was tried by Japan and didn't work. Would the US ever try and hyperinflate like Weimar Germany? I don't think they would try that unless tax revenues were so low they had to literally print money to pay existing bonded indebtedness. But who knows.

[ROCKMAN]

Very interesting report Seahorse. I wish I could fully absorb all that is offered there but my skull is just too chuck full of geology. But here is a simplistic take on the potential deflation (just today they reported a 1% drop in prices for Oct). As I understand the prime reason for deflation is that companies lower prices to move merchandise while at the same time cutting production. The net effect hoped for is an improved bottom line…at least in the sort term. But cutting productivity also means cutting jobs.

Is the goal of the Feds to push so much capital back into the corporate world that businesses again move towards growth? But, if this is part of the plan, won’t the business sector have to respond with optimism that we see no sign of today? As you can tell I’m grasping for some basic understanding to this process.

[Pops]

I didn't listen to you well enough 'horse because the current situation is surprising to me.

I guess I did listen to my inner ear though and the worse things get the better my position seems.

Thanks a bunch for the effort you have expended providing info to the Membership.

You have my vote for contributor of the year.

[seahorse]

Disclaimer, I don't understand all the details either, except the macro picture, which is, the banks fear a depression (drop in asset values). They fear this because when assets go bad, it means their loans go bad, and for businesses that invested in assets at current prices, they lose too. Deflation means an economy isn't growing. So, they will try to "inflate" or jump start the economy by printing money. The ultimate problem is trying to jump start an economy by printing money without hyperinflating an economy, which destroys the money.

In the end, I think the aftermath of a credit expansion will be one of two evils, either depression or hyperinflation. According to Ludwig Von Mises, "Depression is the aftermath of credit expansion."

Von Mises Quotes

Bottom line, literally trillions in bad debts have to be either written off (depression) or repaid (hyperinflation of the currency). Unfortunately, instead of letting private institutions fail, our gov't and most world gov'ts have opted to take these bad debts on the books of the gov't, namely, Fannie and Freddie to mention the big two. So, if they fail, failure means failure of our gov't and dollar.

My fear is this, can we grow our way out of the aftermath? Growth requires energy to produce goods. As most of us believe here, we are closely approaching PO. The IEA says that existing fields are in decline at about 4% per year, maybe a little more, and that just to maintain current production it will take massive investment, but the problem is, we're broke. So, will we find ourselves in this whirlpool of a deflating economy and decreasing oil production at the same time? The mega projects data used to say that all the new big discoveries would be online by 2010, with nothing significant after that. If true, that means by 2010 we should start seeing a serious decline in world oil production if the IEA is correct in its projection of a 4% decline in existing fields.

Rockman, please weigh in here.

[seahorse]

I do think the only way to "grow" our way out of this mess is to let private institutions fail and use what gov't credit is left for a "marshall energy plan" to get off of fossile fuels as much as possible. This would put people back to work, rebuild our infrastructure, help eliminate a huge trade deficit on imported oil, etc. They need to do everything possible to institute things like the Pickens plan, building nuclear, rails, etc.

There are two problems I see with this:

(1) With low energy prices now, people refuse to see the "energy" problem and thus won't deal with it collectively;

(2) even if we did recognize it, could we come up with the money to finance it. The foreigners may not buy our bonds. That's why in a separate thread I suggested "energy bonds" like they used to sell "war bonds" to individual Americans to fund WWII.

[PenultimateManStanding]

$this->bbcode_second_pass_quote('seahorse', '
')(1) With low energy prices now, people refuse to see the "energy" problem and thus won't deal with it collectively;

(2) even if we did recognize it, could we come up with the money to finance it. The foreigners may not buy our bonds. That's why in a separate thread I suggested "energy bonds" like they used to sell "war bonds" to individual Americans to fund WWII.

[seahorse]

Pops,

On an individual level we all need to conserve in every way shape and form. Conserve means become more responsible, more self reliant. Simplicity in thought and action.

(1) live within our means - no more credit. We don't need all that stuff and stuff requires energy and money we don't have;

(2) Drive less and drive slower - saves fuel and money;

(3) Eat in, cook at home, plant a garden.

There are simply lots of things that an individual can do. Email your congressman to be for an energy plan, don't take it off of the political burner. Let them know you support growing our economy by going green. Pass on the idea of personal "energy bonds" akin to "war bonds."

[PenultimateManStanding]

$this->bbcode_second_pass_quote('seahorse', 'P')ops,

On an individual level we all need to conserve in every way shape and form. Conserve means become more responsible, more self reliant. Simplicity in thought and action.

(1) live within our means - no more credit. We don't need all that stuff and stuff requires energy and money we don't have;

(2) Drive less and drive slower - saves fuel and money;

(3) Eat in, cook at home, plant a garden.

There are simply lots of things that an individual can do. Email your congressman to be for an energy plan, don't take it off of the political burner. Let them know you support growing our economy by going green. Pass on the idea of personal "energy bonds" akin to "war bonds."

[TreeFarmer]

The "fastest" way out of this mess would be to give the 750 billion directly to the American people so that they could pay off debts.

Too much debt is what ground everything to a halt.

TF

[Zardoz]

$this->bbcode_second_pass_quote('seahorse', '.')..Drive less and drive slower - saves fuel and money...

[Tanada]

A great deal of the deflation in comodities including oil and gold is due to hedge funds having to raise cash to pay out investors who want out of the market. They have to raise cash any way they can, and seems how they can't borrow in this climate they have to sell assets, mostly comodities, to do so.

I beleive that once the hedge fund cash out period ends for the year comodity prices are going to take off like a rocket because helo Ben has poured trillions of dollars into the economy, meaning inflation is about to shoot through the roof. If you are not all stocked up on food now is the time while the prices are supressed.

BTW anyone looking for financial advice on the internet is probably a lost cause, my advice is not worth the electrons showing it to you on your screen. Do what you think is best with your resources and take responsibillity for the results.

[seahorse]

Zardoz,

I agree with you and that's what makes me a "doomer."

[Polemic]

I've spent a tremendous amount of time, as many of us have, sitting at the computer and reading. Much of this time, for me, was more or less equally divided among one of two kinds of research:

A) Understanding what is happening, why, who is behind it; trying to see the big picture, and where all of this might be headed.

B) Thinking about what I'm going to do about (A) on a personal level - the business of actually preparing for the future.

I excelled at A (in my opinion), but B has been a lot more difficult. I've got some preps done, but I don't know what the hell I'm going to do.

[retiredguy]

Treefarmer,

What you suggest, albeit logical, is precisely what the government DOESN'T want you to do. Without creating new debt, the house of cards will indeed collapse.

I'm with those who wish to go to the other side. Probably will be the end of me, but will be better for future generations.

I firmly believe that we are in overshoot and there is only one way to solve that problem. Amassing more debt and squandering more finite resources is definitely not the answer.

[EnergyUnlimited]

$this->bbcode_second_pass_quote('Tanada', '
')I beleive that once the hedge fund cash out period ends for the year comodity prices are going to take off like a rocket because helo Ben has poured trillions of dollars into the economy, meaning inflation is about to shoot through the roof. If you are not all stocked up on food now is the time while the prices are supressed.

[Revi]

There's a lot of talk about how the dollar is going to take a tumble and inflation is coming back, but no evidence of it yet. It's hard to know which way to jump.

I feel like a soccer goalie at a penalty shot. If I start to lean one way the ball will go the other. I just keep watching, hoping the economy will signal its intentions. No clue yet.

[TommyJefferson]

$this->bbcode_second_pass_quote('EnergyUnlimited', 'O')utcome: Deflation.

[evilgenius]

I'm betting on deflation, as anyone that has read anything I have posted about that for the last couple of years knows, but even I can see sucker rallies and 'happy days are here again' periods between falls.

[RedStateGreen]

Seems like the Fed is just trying to shock a week-old corpse back to life. Or else they're just trying to make us think they're doing something productive, to hide something else they're up to.

[CrudeAwakening]

I think the article seahorse linked to is an excellent summary of the current situation. Payment of interest on reserves is effectively stealth recapitalization of the banks, paid for ultimately by the taxpayer of course.

Bernanke is pulling back the elastic on his inflationary slingshot. The plan is presumably to back out all the injected money at some point in the future, when the financial system is healthy enough to do so without causing a problem (stifles a skeptical guffaw).

The banking system is on life support, and IMO, the patient is unlikely to recover, at least in it's traditional form.