Big Jim Slade

The Fed is Deflating: 10 Reasons Why

"There is no practical way to monetize a trillion-dollar mortgage-banking accident into cash without completely destroying the currency, ruining the market for U.S. treasuries, and effectively shutting down the Federal Reserve."

This is the core of the deflationist argument and here is why it is wrong: Just because the solution elucidated above is neither practical nor logical, and will be an utter failure, doesn't mean they won't actually try it. And in fact they HAVE to try it because they have no other alternatives given the tools they have at their disposal, and the environment that they are working in.

Jim, you didn't think through the obvious conclusion that in our system, money = credit. THERE IS NO REAL MONEY IN TODAY'S ECONOMIC SYSTEM. Real money has all three of the following properties:

1. store of value
2. medium of exchange
3. unit of account

fiat money only fulfills conditions (2) and (3). I postulate that a full-blown deflation cannot happen when what is commonly used as money, is not in fact a store of value.

We will see deflation in all leveraged and paper assets; we will see inflation in all hard assets (i.e. anything that is a material store of value).