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Trade Trends with Bollonger Bands and Twiggs Money Flow

The Great Reflation

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colin_twiggs
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Username: colin_twiggs

Post Number: 591
Registered: 06-2009

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Tuesday, May 04, 2010 - 11:22 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




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We don't believe another inflation of asset prices will last as long as the previous one for several reasons. Private debt has been pushed to the limit; government debt will be pushed to the limit in a few more years; the U.S. dollar, as the world's main reserve currency, will not be able to withstand open-ended monetary and fiscal reflation; and finally, the world economy is too fragile to withstand another spike in energy and food prices which will certainly occur if monetary inflation continues.

The great reflation, if left unchecked, will run into a brick wall in the next few years, and another credit implosion and deep recession will occur. The result will be even bigger budget deficits and lower economic growth. Logic says that if the recent crisis was caused by excessive money and credit inflation, even more of the same should cause an even bigger crisis. The ultimate end point to this trend is worrisome, to say the least.




The Great Reflation: The Mother of all Financial Experiments
By Tony Boeckh


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muzza
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Username: muzza

Post Number: 322
Registered: 06-2003

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Saturday, May 08, 2010 - 10:58 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hello Colin,
For several years I have read your analyses with interest as you seem to take a holistic view - Long Term economic, T/A etc.

The articles at the link you posted are thought provoking - to my simple mind when a country's debt burden to GDP becomes ridiculous then one of the political temptations is to simply inflate away the debt.

Putting off paying the economic piper as it were, is high stakes poker - and the reality is that sooner or later this marker must be paid, and markets have to be corrected.

History does have sobering lessons that should be learned from (in my opinion) - post WW1

politically Germany had to use inflation (in fact hyper inflation) to re-inflate its currency in order to pay for war reparations.

We all know where that strategy led to for the Weimar Republic.

Thanks you for that link - we certainly live in "interesting" times.

Regards
Muzza


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colin_twiggs
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Monday, May 10, 2010 - 10:08 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Thanks Muzza,

That is why the Germans are the most fiscally conservative in the EU: they have been burnt before and never want to risk hyper-inflation again. Voters in most other countries seem to be blind to the risks and will vote for whoever promises the most ..... without considering that the extra money will come from debt rather than revenue.







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bib
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Good posts,
Inflating debt away will be very tempting. For the pigs however, they have no control over this (inflating their way out) unless the Euro countries as a whole decide to take this route, ie print more money etc.
As Colin says the biggest player Germany will most likely not allow inflation in the Euro countries.
Therefore the PIGS will have to do it tough through reduced spending and tax hikes - I expect more civil unrest. For this reason i expect eventual defaults.
The bail outs are just more debt on top of already unsustainable debts and just putting off the inevitable.
As time passes we will become accustomed to these problems and by when the eventual default occurs it will have been thoroughly expected by the markets and the reaction may well be 'ho hum...'.

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