John Lounsbury

Is This the Last Great Bubble?

I agree with Alex_G. If there is a bubble in long-term treasuries it may take a long time to deflate. Almost all new money is going into a black hole to replace bad debt and deleverage the financial system. In otherwords, the new money is not going to be spent; it is replacing money that HAS ALREADY BEEN SPENT. Thus M3 is contracting. As "funny money" (the rats' nest pyramid of debt instruments) disappears, the "value" (dollars that can be obtained in exchange) of the assets purchased with this vanished artificial currency will keep going down. In effect, money is disappearing and will continue to do so until the entire financial mess has deleveraged. Inflation (and money in circulation) will not increase until that process is complete. How long will it take? It has taken almost 20 years in Japan. Since we are moving faster to unwind the mess, it should be shorter here. Maybe 2-3 years? At the very least. The worst case is probably five years or longer.