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User Info	Pillars of deflationists' arguments disputed; entered at 2007-12-01 23:41:22
Donja Posts: 119 Registered: 2007-08-10	For gold bugs the dollar becomes worthless and gold will once again be currency. For gold speculators gold is a means to profit, period. (Hyper)nflationists (gold bugs) assume the Fed will succeed in reflating by lowering interest rates dramatically to allow spreads that provide banks with renewed profit margins that will allow them to eventually re-establish lines of debt/credit. Inflationists are Fed-centric and expect new bubbles to form (inflationary pressure channeled into assets such as commodities, stocks, emerging markets, etc). They assume emerging markets to take off again dramatically after a short slowdown period. For deflationist a severe credit crunch leads to cash as king . . . eventually. The disappearance of money is the same as the drying up of credit. The Fed is perceived as largely impotent. Much of the debt/credit is leveraged and is not represented by physical dollars. It just vanishes into electronic heaven . . . capital destruction. Massive debt/credit creation was the result of financial alchemy: CDOs, CDS, SIVs, etc., that is, the expansion and growth of derivatives, especially evident this decade, which is also the result of the growth of the internet and computer technology in general. The loss of structured finance is well underway. With this expect the inability to replace lost debt/credit with newly created debt/credit through the renewed expansion and growth of said financial alchemy. It isn't going to happen. Now . . . the dollar will very likely strengthen with expanding economic recession on a global scale . . . flight to safe haven: U.S. But this will only be temporary as the flight of capital from the U.S. (now underway) begins anew and speeds up. So . . . might one expect (and this is a sincere question being posed here . . . I don't have the answer) in a deflationary recession (depression) for the dollar to weaken also, and perhaps dramatically? If so, then cash is no longer king (as the dollar as world's reserve currency ends). Any comments? 2007-12-01 23:41:22