Gordo wrote:Or how about the prediction that ...
Firstly, let me say I don't agree with many "predictions" (if they can be called that) John makes in his blogs (so I'm responding to your comments without the generational dynamics rose colored glasses).
I personally find claims that it may happen tomorrow, next month, the month after, the year after or the year after that [but it will happen eventually] as neither here nor there (nor anywhere for that matter).
IMO anyone can make those "predictions" without really having to answer to them (because it can be argued that it will happen eventually).
I do find the depression and deflation discussions interesting though.... because I too believe it is coming (but often for different reasons). There are few people out there believing deflation is even possible. I personally believe they are wrong and it is already here and about to get much worse.
Gordo wrote:We don't have those conditions today, and we won't have them (in the US) during this bear market, period. So comparisons are meaningless.
Not YET is more accurate. Not since the Great Depression have we had this serious of a financial crisis. Not since the great depression have we had such a wide spread devaluation in all asset classes. We are more leveraged than people were in the Great Depression. There are many similarities but also differences. This is only the beginning, more is yet to come. Also, comparisons to unemployment rates is not like for like. They were computed very differently back then. We are currently more at 13-15% unemployment using the same metrics that were used during the Great Depression (either way we still have some time to go before it gets that bad, that is true).
Also, remember, the stock market was pegged to the gold standard up until 1934. If the same metrics were used today, we'd be at about 170 in the DIJA, that's real money for you. Why is it at just 0ver 7000 today? It's called inflation and the fiat system.
Gordo wrote:the US Government will default on US Dollar denominated debt instead of just printing more $ (which wouldn't be so hard to imagine considering Roosevelt's 40% dollar devaluation in 1933).
Think about what will happen if the US Government hinted that it was going to print more money (or "drop money from helicopter's"). What will bond holders do? What will many holders of US dollar denominated based assets do? They will dispose of any and all US dollar denominated assets in a flash. What do you call that? A reduction in the money supply! That is called DEFLATION, not inflation. Printing more money, will make matters worse and NOT better.
The same thing would occur if the market were to believe that the US was about to default on it's debt. Investors would dispose of all US dollar denominated bonds (treasuries) for the same reasons. And again, that would be a decrease in the money supply (aka DEFLATION).
Government's monetary policy can't control social mood swings. Inflation will only come when mass psychology changes from fear (negative) to euphoria (positive), which would happen irrespective of what a country's government does or tries to do. For the same reasons why bail-outs only work during bull market's. It's positive mass pyschology or social mood that makes such things possible and not government actions (or inactions).
In my opinion, governement action is only making things worse and delaying any recovery. Governments can't create real money or wealth out of thin air. They just move it from one location to another (from the savers/prudent people to to non-savers/non-prudent people). Governement takes wealth from the very people we need to turn things around when the time comes.