Wednesday, July 8, 2009

Thunder Road Report – Stop the Inflation or Deflation Debate!

Paul Mylchreest wades into the raging and never ending inflation/deflation debate. He falls squarely into Czar Point’s camp with inflation in the things you need and deflation in most asset classes.

This is definitely true for now. I also see deflation now, inflation later, but I am personally not convinced that this will not turn into an outright deflationary spiral. It very well may and that outcome would be nation changing. I give it high odds solely because the math of the underlying debt simply does not work (and it’s far worse than we know due to the proliferation of derivatives). While Kondratieff winter is definitely the current cycle, as Martin Armstrong points out it may be a shorter cycle playing out inside of a 224 year cycle which is even larger and “nation changing.” Move forward 224 years from the signing of our Declaration of Independence and we arrive in the year 2,000. Just remember that events on this scale do not unfold overnight. We are living through a period of great upheaval and it’s surely not done expressing itself! For even after the economic events play out, we still face those “other events” that tend to follow times of economic upheaval.

So, to see inflation in my judgment, we must see the ability of incomes to service the debts. Incomes are NOT going to rise to THAT level anytime soon, thus the only way to get incomes to that level is through DEFAULT. Default is in progress, but it is slow and being masked – quantitative easing EQUALS DEFAULT. Issuing I.O.U.s EQUALS DEFAULT. But those losses must be recognized and dealt with. They will be. Inflation will not happen again until AFTER they are – imho.

Great piece by Paul, good food for thought… I really enjoy his writing style and am glad he’s willing to share his work with us!

Thunder Road 1976 - Bruce Springsteen: