Monday, August 24, 2009

Credit contraction is outpacing monetary stimulus

"... the Eurozone, the UK, Japan, and essentially every county on the planet is all attempting some sort of stimulus plan or other. This is bound to cause a major distortion at some point, as no country has anything remotely close to an exit strategy for this. What kind of distortion and when cannot be certain because we are indeed in uncharted territory, worldwide."

- Mish.

The more I read around, the more uncertain I become. All I have is my instinct, that things are out of control and we're being told fairy stories to lull us.

Mish's argument is that "The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model." If he's right, it's cash is king, for a long time to come.


Anonymous said...

I have to say, Mish's argument sounds reasonable to me.

People say, "well look this is going up and that is going up, therefor there is inflation and soon we will have hyper inflation".

If, as Mish suggests deflation is a contraction in the amount of money AND credit then what we see just now can be explained.

People think deflation is 'prices going down' it doesn't have to mean that. There is much credit in the economy that just doesn't impinge on people's everyday life. As that is destroyed we are in a sort of 'phoney war' where not a shot has been fired but war has been declared.

The war will really start when the economies around the world find they cannot get the credit to maintain their operations. Unemployment will skyrocket and governments, especially western governments will default. Then we will see some blood shed!

I still think cash, possibly land where you can grow something is not a bad idea. I surely (and I speak as a City dweller, do not want to live in London or any of the other larger cities then.

Sackerson said...

Thanks for your visit and extended comment, Anon. You echo my fears.