Friday, Dec 19, 2008
"A toxic mix of high debt and deflation. An economy can handle one at a time, but not both."
Telegraph: Federal Reserve is damned either way as it battles debt and deflation
Lombard Street Research have come up with some disturbing figures. US household debt is now $13.9 trillion, down just 1pc from its peak last year. Meanwhile household wealth has fallen 14pc as property crashes, a loss of $6.67 trillion. The debt-to-wealth ratio is rocketing. The obvious conclusion is that the Fed should print money to purchase private sector assets so as to drive up their price. Put bluntly, the Fed is deliberately stoking inflation. At some point it will succeed. Then the risk flips quickly to spiralling inflation as the elastic snaps back. There will be a second point of danger: the bond markets could go into free fall. The Fed is flying by the seat of its pants. It should never have let debt grow to such grotesque levels in the first place.
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