SW Richmond

Dollar Down, Gold Up: Great News?

"De-leveraging does not cause whole markets to stop functioning properly."

Sure it does. De-leveraging means high-leverage credit-money disappears, crashing once-inflated asset prices, shredding books, and causing wholesale reevaluation of businesses. This is exactly why the Treasury and the Fed are so obsessed with getting banks to lend again.

Deleveraging also means self-defensive liquidations to pay off debt, and in a fractional reserve system, paying off debt actually destroys credit-money, which is deflationary.

Deflation is what would happen absent intervention. But we have a Fed determined to reinflate, and that is why I am betting on either reinflation or currency destruction (hyperinflation), which are the two possible outcomes. The worse your predictions of coming deflationary pressures, the larger will be the Fed's inflationary response. They cannot and will not hold anything back; the Fed is totally committed.

Can one "prepare" for a hyperinflation? Not adequately, no, but one can buy things in advance that one knows one will need anyway, virtually without risk. Lose my job in a deflation? I already have "it". Currency useless in a hyperinflation? I already have "it". See?

Your thoughts on confirmation-bias are wise, and that is why I read your article. I didn't find anything to convince me I'm wrong. I guess I'll have to keep looking.