Friday, January 1, 2010
Anon wrote: "FDR, isn't it possible that banks that borrow money from the fed are putting it somewhere where they can get a higher rate of return?What is keeping them from taking their $'s overseas, which is what the carry-trade crowd is doing?
The Fed makes a nice profit, the banks still profit. For now..."
There is no easy rate of return above 0%. That's why the world's wealth is piling onto 0% treasuries at the rate of about $0.5T per month. Smart businesses know, or sense, that the natural state of affairs has shifted to dwindling profits, as opposed to the easy inflationary "growth" of yesteryear.
The businesses that will really suffer those that refuse to acknowledge that most of their previous growth, and thus increasing access to capital, was nothing more than the trickle-down result of an unrecognized Fed-government-banker Ponzi scheme. Most business in the US are insolvent, at least partly because their business models simply don't work in a stable or deflationary environment. In fact, they never worked, but for a dwindling domestic dollar covertly chomping away at their liability column.
Deflation is probably running between -10% and -15% today. During the Great Depression the deflation rate peaked at about -12%, we should double that during our peak crunch years. This is a most likely a Grand Supercycle topping process, meaning the wave length from our s 5th wave to Wave 1 reaches back several hundred years to pre-American Revolution, at least, possibly even capturing another degree, back to a Roman W1-2. The magnitude of our top formation is the largest challenge and also the largest opportunity.
The long-term deflation trader of today is much like the one-in-a-million inflation believer in 1932+. Grandchildren will be the most likely beneficiaries, after decades of grands fits and grand starts. It'll be easy to die thinking you were wrong, only to miss the next harrowing tumble.
Money frozen in the form of assets will lose value for decades. Stuff inflated cash into a time capsule and forget about it (or more risky: short assets in all classes).
Posted by fdralloveragain at 12:45 PM