United States Heading towards a Depression?

What news are you talking about?

 

The money supply can still contract while prices go up and the value of the dollar falls. You might not find it in the economics books simply because its never happened before in America - we've just reached a critical point in foreign investor appetite for the dollar. Despite decreased dollar supply from a year ago, there's less demand on the dollar - due to like you mentioned the huge trade deficit and the fact that our trading partners already have trillions of dollars. Falling supply + Falling demand = bad product. Is that deflation? I don't know, I always thought inflation/deflation were subjective terms and should be addressed explicitly as volume of cost and volume of monetary supply. They tend to go together - but extreme circumstances could cause a disconnect. In this case, money vanishing and prices going up at the same time.

Agree and disagree - the Fed HAD a choice but it used it up in 2001-now trying to drop the interest rate to a lower than sustainable level. Not only did they create bubbles, but the "equity" in those bubbles was used to back 10x its "value" in new loans.

Now that the housing bubble burst, and thanks to the magic of fractional reserve banking, we have tens of trillions of dollars in loans and investments based on fractional reserves that do not exist. Suddenly - banks, bond insurers, and hedge funds (mutual funds are next) are missing margin calls and going bankrupt overnight. Why? Because the money we had last year just isn't there.

This is why the Fed is desperately trying to (practically) give money away to the banks - to get them up to their reserve limits before the accountants catch up.

 

Fractional reserve lending caused a dramatic overextension of credit, similar to the 1920's and now is back to bite us in the ass.

 

That's why we are facing the worst recession since the great recession.

There's plenty of money but Americans are living above their heads. There was a $711.6 billion deficit for 2007. So basically $711.6 billion is removed form the US monetary supply to become foreign currency reserves of our trading partners.

If the Fed continues play 'bubblenomics', we will have a dollar collapse and the worst recession since the great depression.

US $711.6 billion deficit for 2007
China $256.3 billion
EU $107.4 Billion
Japan $82.8 billion
Mexico $74.3 billion
Canada $64.2 billion

 

Well, that is what Bernanke based his academic work at Princeton on. The theory that you can inflate yourself out of an inflationary crisis. He's the uber Keynesian, thinking that if some inflation is good, more must be better.

But the point is, the more easy credit in the system, the less savings and the greater the mal-investment. He's poisoning the system trying to save it.

What's interesting through this, is that there is no end in sight. No one has a solution, and there is no turnaround until there is a total collapse (based on the pundits and experts). At this point, Bernanke could show up at the FOMC meetings, dressed like a circus clown, stoned on cocaine, play XBox 360, and I don't think it would make a lick of difference in the world.

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I'm not sure which of these is the Freudian slip.

 

I'm kind of curious about this, as home prices deflate, peoples heloc credit disappears, stocks in many lending institution crash,

isn't there trillions of dollars just evaporating, and wouldn't that offset inflation

at beginning of the great depression there was deflation not inflation

I mean you can buy more house now for your dollar then a couple years ago, same is true with some other things

 

Yeah, but you can only buy more of the things that were overvalued, not the things that are/were undervalued.

 

It would, if demand for the dollar was holding steady. Supply is going down, but demand is falling faster than the supply - hence, less money worth fewer goods.

Other than a house or electronics, I can't really think of any. Energy costs are going up at a 30% annual rate, food is around 15%, health & education are about 10%. If anything, annualized price vs. performance in computers has slowed down from the gains achieved in the 1970s to mid 2000s. (power was doubling every 3 years at a steady price)

 

TIPS' Yields Show Fed Has Lost Control of Inflation

 

You guys ever check out Shadow Stats? I have to admit, I was ignorant of this site until recently. Loads of very interesting data.

 

That's how it starts. It getting more like the 1970s every day. Diesel fuel now averages $3.80 a gallon and prices pressue is increasing for goods and services.

Oil is now $108.21 a barrel and the Yen advanced to 101.85 per dollar.

Producer prices are increasing at the rate of 6.6% in both South Korea and China.

 

The funny thing about fuel right now is that supply outweighs demand, yet prices keep rising anyway.. That is completely counter to the Law of Supply and demand.

The long term solution is to keep demand shrinking. Eventually prices will have to fall.

 

Sounds a lot like a CNN article, almost verbatim..

 

It appears that the lower dollar and the world wide shortage of wheat is escalating the purchases of wheat. The short term benefit is an increase of US exports. However, US grain elevators are near empty and wheat sales are up 114% over last years. Inflation on food is running 7% and along with the high cost of oil will cause more people to default on their mortgages.

Of course, we know what that means. Bernanke will need to print more money and ad more fuel to the fire so to speak. March 18 is the next Fed meeting and if the Fed follows threw with the projected 3/4% rate cut, the dollar is in for more downward pressure.

http://www.ethanolmarket.com/PressReleaseUofIllinois121007

 

John Galt Plan Might Save U.S. Financial System
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avFnuh9oWHVo

Intro

Ayn Rand fans will be able to appreciate this article.

 

The Federal Reserve and other central banks said they will pump $200 billion into the financial markets to help ease the strain from the credit crisis.

The program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed — acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank — agreed to loan investment banks money in exchange for debt that includes slumping mortgage-backed securities.

http://news.yahoo.com/s/ap/20080311/ap_on_bi_st_ma_re/wall_street

 

Should I be shorting freddie mac and fannie mae?