rationalskepticism.org

FACT-MAN-2 wrote:

stevecook172001 wrote:His predictions are bollocks because they take no account of how asset prices can be held up (at least in nominal terms) with money printing (or its electronic equivalent), which is not an economic phenomenon obeying some kind of underlying economic "laws"; it is a politicial one and so is far less predictable, or is entirely predictable depending on who is wielding power.

Money printing is why the market has not dropped by 60% already. Thus, we are far more likey to experience an inflationary bust than we are to experience a deflationary collapse.

Asset pricing isn't the only variable, however.

The econmy suffered a major contraction in 2008 without there being an inflationary push or big time deflation. The threat of excessive debt can drive a collapse.

Not if that debts in the bank can be covered with funny money and the debts of householders can be coveed with ZIRP or near-ZIRP. Which is, of course, precisely, what has happened over the last 5 years.

Whilst collapse cannot be avoided if the debts are big enough, whether that collapse is deflationary or inflationary is entirely a matter of political and economic policy. All things being equal, policy-makers will always go for inflation because it represent a covert default as opposed to an overt one. Overt defaults tend to frighten the horses and produce unfortunate things like revolutions.

Also, the reason there was not massive deflation or inflation in 2008 is because all of that funny money simply sat in the banks on their balance sheets allowing them to pretend (and still pretend) they are not actually bust. Where it has started to bleed into since then is the stock market. Which is precusely why, whenever the US looks like it is about to post postivie employment datam, the stick markets throw a shit fit and lose about 2% overnight.

Why?

Because traders make the entirely rational judgement that this may mean that QE may stop, and they know full well that is the only thing holding the stock market prices up.

That's the new economic reality dontcha know. Up is down and good is bad.