[FoRK] What it means...

Bill Stoddard wgstoddard at gmail.com
Tue Sep 29 05:36:29 PDT 2009


>
>
> I've been following the inflation/deflation debate closely and as John 
> Mauldin says, correctly calling the outcome (and timing of the 
> outcome) will determine the success of ones investment strategy.  So 
> far, I've been firmly in the 'deflation' camp.  However..... it is 
> damn significant  to realize that deflation is an -existential threat- 
> to the Fed.  It's also relevant that the Fed is not a government 
> entity... it's a cabal of private bankers whose life blood is 'credit' 
> and they have interests that do not necessarily coincide with the 
> interests of the public at large.  What are the chain of actions the 
> Fed will take if deflation persists?
> Bill
>
I should probably reverse the order of this comment...

First, it should be realized that the life blood of the Fed (a cabal of 
private bankers) is credit.  Deflation is, by definition,  a contraction 
of money supply and credit.  Credit has imploded far beyond actions to 
increase money supply.  The increase in money supply has, for the most 
part, gone to the balance sheet of the banks, but the banks are still, 
for all practical purposes, insolvent... their exposure to bad credit 
still dwarfs the injection of printed money.  So what actions will the 
Fed take to repair the balance sheets of the banks (their banks) and to 
fight deflation?  Understand that (and the timing) and you can make 
money in this environment.

Bill




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