Is Armageddon '08 Concluding? 6 comments
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The major media has done its job. After burying its collective head in the sand for years as Wall Street perpetrated a moral hazard of epic proportions upon Main Street America and much of the rest of the world, the media have now scared the public so thoroughly with daily stories about debt, derivatives, evaporating liquidity and now, even deflation itself. The public, as usual eats it up and creates the counter-party for what comes next.
I am growing as tired of posting macroeconomic charts as you may be of looking at them (my first love after all is technical analysis of stocks and markets), but they remain vital as we look for the all important turning point from deflation overload to phase one of the reflation – with all the good and bad that it will bring.
To review, my stance has been a simple progression: Deflation impulse (2002) begets inflationary policy, which brings on an inflation-fueled boom and the ‘global casino’ environment born of moral hazard and built upon misperceptions and greed. This is corrected but good with another, more severe deflation impulse, which begets reflation policy, which brings on another more severe inflation problem as we ride the cycles to von Mises’ Crack Up Boom and the law of diminishing returns.
Libor has eased significantly. The 3 month Libor is similar. The chart is self-explanatory. Now let’s look at M2 and MZM courtesy of the St. Louis Fed.
click to enlarge
M2 has been in launch mode throughout the crisis, but its zero maturity cousin, MZM has failed to launch. Last week we noted a little hitch upward in MZM.
This week the little hitch has grown bigger and has in fact risen to new highs. It is not an earth shattering move but it is now hinting that funny munny is beginning to dribble to where policy makers want it to go. The flat line that has encompassed all of 2008 can be looked at as a consolidation before heading higher (into uncharted inflationary waters).
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This article has 6 comments:
What you and others are not saying is what are the possible ultimate consequences.of hyperinflation. There are not too many.
It will likely end with the birth of a new gold-backed currency managed by a near totally integrated super state (totalitarian). When the currency exchange (read wealth as well as cash) comes the USA will become a fully egalitarian society with no elites and no have-nots (and fewer still innovations and new capital formation). Out-migration to Asia will draw the talented US citizens to the new Asian Co-Prosperity zone (China, Taiwan, Korea and Japan ?). I suspect all of this in the USA will be presided over by a supreme court that trashes history, traditions and past decisions (of better courts). It will be the new Asian Industrial State with touches of Orwellian 1984 thrown-in. One of our presidential candidates also see this and is moving toward that future with all of his might.
"The market thinks the Democrats cannot go through with their more expensive plans."
Keynes was far from a socialist but recognized the paradox of thrift and the last thing that any of the central bankers/politicians/ta... want to see is the mountain of debt having to be paid off in constant value dollars.
But once GDP is exceeded a couple of times over, I think the dollar will head south in a big hurry.