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Disabusing Popular Assumptions

There are a couple of assumptions floating around in certain quarters that I’d like to disabuse. One is that based on its recent statements and actions, the Fed is reflating. Another is that it will be successful, in fact too successful, resulting in high inflation. Another is that foreign central banks will be around to take on all the debt that the US Gimmeit will have to pile on the market at very low rates to realize its bailout/stimulus pipedreams.

All quite logical, except for the fact that as the deflationary collapse progresses the FCBs themselves will probably run out of money first. They will need to be net sellers of all kinds of US paper to meet the needs of their own citizenry. That the FCBs will be there for us as long as necessary isn’t a bet I’d be willing to make.

I think that it’s more likely that one of these days a Treasury auction is going to fail. Then what? Who the hell knows? That’s what.

Have you seen all the news about companies cutting salaries and benefits for all their employees? Have you seen the prices in the retail stores lately?

We are so doomed.

It absolutely astounds me that we are in the early stages of deflationary debt collapse and economic collapse, and people are actually trying to figure out ways to justify the idea that we are going to somehow end up with inflation as a result of collapsing prices and wages.

Show me the evidence that deflation is ending first, then I’ll be willing to consider what comes after. Show me the evidence that the amount of new debt created by the Fed is anywhere near the amount of debt and being destroyed by the private sector.

I can’t understand why people are speculating on this stuff when stock prices will tell us when things are beginning to turn around. How many weeks ago did people on our boards (Stool Pigeons Wire) start buying the double long energy ETF?

I mean, really. HAVE WE LEARNED NOTHING?

THE TREND IS THE TREND UNTIL IT ISN’T.

Here we have something in our hands right now–it’s called cash– that is increasing in value for the moment, and people insist on throwing it away.

I don’t get it. I just don’t. I’m sorry, but I am just not into games about predicting the future by trying to see around blind corners. I’m not going to play that game. It’s tough enough to figure out and understand what is right now, and what the immediate effect will be, without speculating 10 moves ahead. This ain’t chess. It’s an unstable system, not a game with fixed rules and predictable outcomes, and we do not know what the effects of these moves will be, and neither does the Fed or the US Government.

Bernanke thinks he knows what caused the Great Depression, and he thinks he knows how to prevent another one.

Well, it just so happens that the Great Depression was caused by the bubble that preceded it, not some widely debated errors made by the Fed as the Depression was getting under way. The government can’t stop these processes until they have run their course. Please note that Japan started trying to do so 19 years ago. By not allowing the natural processes of depression and regeneration to happen, here we are 19 years later, and not only are they still fighting the same battle, now the rest of the world is too.

The lesson should be clear to everyone. Once the forces of deflation have been set in motion monetary and fiscal policy are powerless to stop them.

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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