How Are The Governments To Finance Themselves?

Well one thing I doubt we’re going to see from any of them is the honorable path. I’m getting the strongest feeling that as more and more countries see the advantages in having their currencies weaken, we might begin to see a subtle “race to the bottom”. How they’re going to do that without drawing too much ire from the others is their biggest problem. But I think that’s the path they “want” to take. I’m not so sure they’re going to be successful though in the long run.

True enough, the American dollar is showing some serious strength here. I expect that to continue, and indeed accelerate. The Canadian is attached at the hip to the American (within well managed limits), but I can see European currencies starting to fall off the table in the coming months. Yup… a very strong American dollar is very possible.

In fact, I’m starting to think that all the money printing that we’ve seen in past years is a struggle to stave off the “unwinding” of inflation that has already happened. I think all the money printing is a panic to stave off deflation that sure to unfold with credit contraction. And I doubt it’s going to work. I never thought I’d say this, because at first glance it doesn’t seem to make sense. But I don’t think inflation is in the cards.

Unless the banks of the world start to lend out boatloads of money, so that it can multiply via the fractional reserve banking system into 100 times it’s own volume, what we’re looking at is a catastrophic “unwinding” of credit. That my friends is the very definition of deflation.

Deflation is much more of a dangerous monster in the eyes of the FED than inflation is. They’re horrified of deflation, and I’m starting to believe that’s what they’re fighting. I don’t think they’re going to win that battle. In my view, the deflationary case is making more sense every day. I could be wrong though. After all, I got married once.

- Northern Dancer

Related Posts:

• This so called “Stress Test” of the banks
• How bad, in theory, could this really be?
• The UK is the big “tweety pie” in the coal mine.
• The US economy is in deflation:
• I am old enough that I remember my grandfather’s words about his living through the Great Depression.

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