Comments on: Are We in the Final Phases of a Credit Expansion? Protect Your Portfolio Now http://www.dailyreckoning.com.au/credit-expansion/2007/05/15/ An independent perspective on the Australian and global investment markets Sun, 21 Mar 2010 13:47:20 +0000 http://wordpress.org/?v=2.8 hourly 1 By: stu mann http://www.dailyreckoning.com.au/credit-expansion/2007/05/15/comment-page-1/#comment-2143 stu mann Tue, 15 May 2007 19:06:22 +0000 http://www.dailyreckoning.com.au/credit-expansion/2007/05/15/#comment-2143 Not only did the staff at the Daily Reckoning get it wrong, but so did the likes of of J. Puplova, D. Noland, R. Prechter AND Milton Friedman. As the debt bubble grew & grew and the global economy shifted into anti-gravity mode, even old Mr. Milton was at a loss. The amount of credit being created should have resulted in massive inflation, yet it did not. In fact, it can be argued most of the ground level inflation (not housing) which occured since 2002 has been the result of centralized price control (corporate monopolization) rather than the traditional shifting of costs. Why? Henry Liu & Doug Noland make a good case for the decoupling of the financial from the real economy, but then that begs the question, how did the decoupling occur? It occurred because the central banks of the world conspired with one another to create phantom collateral upon which to continue the credit bubble, evidenced by those bogus Fed Reserve Notes which turned up in Manila a few years ago. This phantom debt formed the basis for all the liquidity injected into the global economy since about 2002. The past few boom years are based on this nonexistance capital. This would be the meta-version of what K.A. Fitts talks about - Reagan-style voodoo economic corruption. Simply put - balancing the books is only for the little people. The Fed & the BOJ are above it. So central banks attempted to bootstrap the global economy out of the scary deflationary scenario Prechter kept warning about (and still is, and is still getting it wrong). This was debt free money from the core - but unlike traditional counterfiet money which will result in inflation (the Nazi's attempted to destroy the British economy during WW2 via phony pound notes), the central banks only used the phantom liquidity as a basis from which to lend. Just like the infamous trader at Barings Bank, I figure they fully intended to take it off the table once the global growth became self sustaining. But it never left the system and never will. I'm guessing the big hedge fund traders caught the old men at the Fed & the BOJ red handed and are now blackmailing them, meaning, any attempt at monetary policy is useless now that this phantom credit is trapped inside the system. Will this phantom liquidity result in inflation or deflation? Who knows. I figure the big traders will carry the game too far and destroy the entire financial apparatus. There won't be any place to hide then. Not only did the staff at the Daily Reckoning get it wrong, but so did the likes of of J. Puplova, D. Noland, R. Prechter AND Milton Friedman. As the debt bubble grew & grew and the global economy shifted into anti-gravity mode, even old Mr. Milton was at a loss. The amount of credit being created should have resulted in massive inflation, yet it did not. In fact, it can be argued most of the ground level inflation (not housing) which occured since 2002 has been the result of centralized price control (corporate monopolization) rather than the traditional shifting of costs.

Why? Henry Liu & Doug Noland make a good case for the decoupling of the financial from the real economy, but then that begs the question, how did the decoupling occur?

It occurred because the central banks of the world conspired with one another to create phantom collateral upon which to continue the credit bubble, evidenced by those bogus Fed Reserve Notes which turned up in Manila a few years ago. This phantom debt formed the basis for all the liquidity injected into the global economy since about 2002. The past few boom years are based on this nonexistance capital.

This would be the meta-version of what K.A. Fitts talks about - Reagan-style voodoo economic corruption. Simply put - balancing the books is only for the little people. The Fed & the BOJ are above it.

So central banks attempted to bootstrap the global economy out of the scary deflationary scenario Prechter kept warning about (and still is, and is still getting it wrong). This was debt free money from the core - but unlike traditional counterfiet money which will result in inflation (the Nazi's attempted to destroy the British economy during WW2 via phony pound notes), the central banks only used the phantom liquidity as a basis from which to lend. Just like the infamous trader at Barings Bank, I figure they fully intended to take it off the table once the global growth became self sustaining.

But it never left the system and never will. I'm guessing the big hedge fund traders caught the old men at the Fed & the BOJ red handed and are now blackmailing them, meaning, any attempt at monetary policy is useless now that this phantom credit is trapped inside the system.

Will this phantom liquidity result in inflation or deflation? Who knows. I figure the big traders will carry the game too far and destroy the entire financial apparatus. There won't be any place to hide then.

]]> By: Deron Kawamoto http://www.dailyreckoning.com.au/credit-expansion/2007/05/15/comment-page-1/#comment-2138 Deron Kawamoto Tue, 15 May 2007 06:33:15 +0000 http://www.dailyreckoning.com.au/credit-expansion/2007/05/15/#comment-2138 A sharp contraction of the credit bubble would cause a steep fall in the money supply by definition. Under those circumstances, shouldn't deflation be the major concern rather than inflation? It would certainly seem like this potential, which has been clear for a year now since housing started to fall is a major factor keeping gold from going to new highs despite the growth of the credit bubble. If the credit contraction hits, I would think gold would get pummelled. Sadly, gold (and silver) seems to be just another asset class being bid up by the frothy liquidity at the moment. The positive correlation to stocks on a daily and even hourly chart makes me very uncomfortable. If I buy gold at current prices, isn't that a bet that the central bank reaction to a bursting bubble will be to hyperinflate? Given the respective examples of deflation in Britain and the US during the Great Depression vs hyperinflation in Germany's Weimar Republic, I would hope that they would choose deflation as the clear lesser of two evils. A sharp contraction of the credit bubble would cause a steep fall in the money supply by definition. Under those circumstances, shouldn't deflation be the major concern rather than inflation? It would certainly seem like this potential, which has been clear for a year now since housing started to fall is a major factor keeping gold from going to new highs despite the growth of the credit bubble.

If the credit contraction hits, I would think gold would get pummelled. Sadly, gold (and silver) seems to be just another asset class being bid up by the frothy liquidity at the moment. The positive correlation to stocks on a daily and even hourly chart makes me very uncomfortable.

If I buy gold at current prices, isn't that a bet that the central bank reaction to a bursting bubble will be to hyperinflate? Given the respective examples of deflation in Britain and the US during the Great Depression vs hyperinflation in Germany's Weimar Republic, I would hope that they would choose deflation as the clear lesser of two evils.

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