No pain, no gain

[kent nickell]

Always interesting to check in on Karl Denninger occasionally... At the link you can also watch him present a 7 minute video of his current views... I basically agree with his premise that we are running into a 'bailout wall'. To protect the overall value of the dollar we need to let more entities fail and clear the debt out of the system.. I think the Fed realizes this and they are trying to let the air out of the balloon slowly. The problem is that they claim they are doing this because they are in a better situation since the economy is doing better. I think they are doing it because they are essentially forced to in order to protect the dollar. What use is the dollar as a reserve currency to the world if we use it to monetize our debt by just printing more of it.. ? This is just literally papering over the problem.. Other countries realize this and will tend to seek out stronger currencies.. Monetizing the debt also keeps long term interest rates down by crowding out the market in long term Treasuries... If we weren't buying these bonds and wanted others to buy them we would have to offer them a higher interest rate... This would be reflected in higher interest rates for home mortgages and corporate borrowing which we are trying to avoid... But we are also running into the monetization wall...

So the Fed at this point is being forced to withdraw some of the massive support they have provided.... They are trying to deflate slowly as the system is fragile... No one wants to make things worse but there is still more pain to work through to get to a better place... They are moving in the right direction but I would hesitate to attribute this to a more stable condition....

http://market-ticker.org/archives/1439-WARNING-Deflationary-Collapse-Dead-Ahead.html

 

[sharon sanders]

Re: No pain, no gain

Thanks Kent. Interesting.

He neglects to address the effect of paying back the debt with deflated dollars and also a potential increase of tax receipts as a result of capital gains taxes on market transactions.