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Sunday, February 08, 2009

Denninger: deflation

Belatedly, I refer you to Karl Denninger's end-year review and forecast. He sees continuing deflation, and makes a number of other plausible and worrisome predictions - scroll to the end of his post for the horrid gallery of prognostications.

In short:

...rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.

So instead of staring at the low interest on your cash balance, think of the real capital appreciation of your money as measured by what big-ticket items it will buy. And for once, the government can't easily tax your capital gain.

You may also want to hold more cash away from a bank ("Round #2 of severe bank instability gets served up on us in the second half of 2009").

And maybe diversify your currency holdings:

The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are... The rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example... I see the potential for the pound and euro to both reach par with the dollar.

I think Denninger on the one hand, and Faber/Janszen on the other, may both be correct. It's a matter of timing - deflation now, debasement of the currency later. Because nominal debt gets relatively bigger as assets and incomes decline in value, something will have to give.


OldSouth said...

If you live in the USA(and are a registered voter!) I would plead with you to be in contact with your Senators and your House Member.

Also, contact the three Republican senators who are about to sell our futures for their fifteen minutes of approval from the White House: Collins of Maine, Snow of Maine, Specter Pennsylvania.

It's great to talk amongst ourselves, but we really need to be talking to THEM! They didn't announce their betrayal until Friday afternoon, when normal people aren't paying attention.

Typical Washington behaviour--deals made in the dark, votes taken on Sundays, unread bills voted upon, etc.

This has to change, if our grandchildren are to have a life at all, on either side of the pond. They will destroy the dollar, and generations of labor and sacrifice invested by our families.

Please, speak up, respectfully, but loudly!!

They really do pay attention when a flood of their constitutents(and potential donors) raise unshirted hell.

In the end, it's all they listen to.

Sackerson said...

Alas, Old South, I'm not a US citizen, but my brother is. I shall email him your comment.