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Old 09-17-2008, 02:28 PM
zeroEthix zeroEthix is offline
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Default Deflation or Deleveraging?

I am not smart enough to tell what's going on these days...seems like Russia and other emerging markets are collapsing in the wake of our 'demand destruction' thus creating a downward spiral (margin calls, etc.). This, to me, would be delevering, but it could really be deflation because billions of dollars are being 'burned' with the housing mess and bankruptcies...

Thoughts?
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Old 09-17-2008, 02:36 PM
axjoke axjoke is offline
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Quote:
Originally Posted by zeroEthix View Post
I am not smart enough to tell what's going on these days...seems like Russia and other emerging markets are collapsing in the wake of our 'demand destruction' thus creating a downward spiral (margin calls, etc.). This, to me, would be delevering, but it could really be deflation because billions of dollars are being 'burned' with the housing mess and bankruptcies...

Thoughts?
I kind of thought they were the same thing. Mish, after a few email exchanges, finally convinced me that inflation/deflation is simply an increase of money supply. Doesn't matter if its printed or lent in the supply. So deleveraging is deflationary if it overwhelms printing.
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Old 09-17-2008, 02:51 PM
zeroEthix zeroEthix is offline
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Good point...I thought about them being one and the same, but wasn't too sure about that. I guess delevering can be seen as wiping away leverage/debt, hence deflation.
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Old 09-17-2008, 04:13 PM
tenthring tenthring is offline
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Actually there is a difference between "money" and leverage. Money can be lent out to multiple people at the same time. When you put a dollar in the bank that can be lent out 10 times. You can use the money in your checking account aat the same time that the person the bank loaned it to is using it. Its "high powered".

By contrast low powered money can't be used by two people at the same time. If you buy a CD at the bank and you can't touch it for 12 months then you can't be using that money at the same time that the person who borrowed it did.

Of course I could start getting into 0% reserve requirements but I will leave that alone for now cause I'm busy.
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