It could be inflation or
more debt deflation.
Not exact matches
But
debt deflation is what happens when people have to spend
more and
more of their income to carry the
debts that they've run up — to pay their mortgage
debt, to pay the credit card
debt, to pay student loans.
So U.S. consumer spending will fall because of (1) no
more easy mortgage or credit - card credit, (2)
debt deflation as consumers repay past borrowing, «crowding out» other forms of spending, and (3) downsizing and job losses lead to falling wage income.
The problem is that the bankers» solution — the inevitable result of Mr. Greenspan's policy of shifting central planning onto Wall Street — is that it will culminate in the anarchy of
debt deflation, deepening unemployment,
more real estate foreclosures, and capital flight out of the dollar.
Since 2001 the silver and gold markets have gone up substantially as a reaction to the 20 year precious metals bear market from 1980 — 2000, massive increases in military spending, weakening global economies that REQUIRE Quantitative Easing to avoid
deflation, the rise of competing currencies that weaken the dollar's trading status, excessive
debts in Europe, Japan, the United Kingdom, and the United States, and so much
more.
Why then would banks lend
more under conditions where a third of U.S. homes already are in negative equity and the economy is shrinking as a result of
debt deflation?
Remember what Irving Fisher told us in The
Debt - Deflation Theory of Great Depressions: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gulli
Debt -
Deflation Theory of Great Depressions: The public psychology of going into
debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gulli
debt for gain passes through several
more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.
And if most governments in the world have been financing their budgets with
debt, the minute the
debt deflation hit, that's essentially the bond market saying, «hold on now it's going to cost you a lot
more if you want to continue financing your budget».
From an investor's point of view, companies that accumulate large cash reserves or that have relatively little
debt are
more attractive under
deflation.
Coming out of a recession, and even
more so if it is
debt deflation, the key question to ask is whether most of the financing problems are solved.