Asbytec

Inflation Is in Our Future...Not Deflation

There is a run on the banks. Not by depositors (there aren't many), but by investors. Banks are selling off assets to make good on that debt. Despite Fed injections, the available money is drying up faster (over the last few months) than it was and is being created (I argue since the 80's.) That's the global liquidity we're talking about, in dollars, euros, yen carry, etc., and that's the deflation threat.

Unless this halts and credit markets get flowing anytime soon, there will soon be less dollars floating around the world doing what dollars do, such as satisfying oil contracts. Heck, if deflation goes far enough, we might not see inflation at all. If so, the dollar should regain much of the value it lost since the 80's and since 2002. Especially, if the government regulates derivatives and the like, which they probably will do...thanks Madoff, et al.

Just think, all that money disappearing from and (a portion of it) magically reappearing in our banking system as fresh resource for asset investment and (tighter) credit. Inflation is all in the timing. If credit markets flow too soon, yes, hyperinflation. If deleveraging takes a good while, well maybe not (as the available money might just be less than this year's level.)

Folks are going to think twice about investing in MSBs and banks are gonna think twice about lending, at least until until asset values stabilize...which probably wont happen until deleveraging slows and lending starts anew...which probably won't happen until toxic debt is cleared form bank ledgers. Which probably means a good long while...