Reflation without Representation

[Green_Bear]

The US and the world are experiencing a rare debt deflation. It is both driven by and causing economic contraction as asset prices fall. It’s coming on fast and furious. Debt deflations follow periods of credit excess that created debt financed asset price inflation such as the US experienced in the 1920s and Japan in the 1980s.
What happened next? A couple of charts below, familiar to frequent readers but fresh to newcomers, show what happened in Japan. US policy makers are well aware of the risks and are prepared to do just about anything to avoid a repeat of the error. >>>>>

Reflation without Representation
itulip.com/forums/showthread … #post25295

[Green_Bear]

The world did not wait for the US markets to open on Tuesday. A Global Bloodbath took place on Monday without us. What’s happening is a forced unwind of leverage, especially in various anti-dollar and Yen carry trade plays. The credit bubble is clearly unwinding and it has much further to go.
As the Asymmetrical Unwind of the Credit Bubble continues, please think about how pervasive anti-dollar sentiment is in context of Things That “Can’t” Happen.
With that sentiment in mind, let’s take a look at things from the perspective of various currencies and the carry trade. >>>>

Global Decoupling Myth Shattered In Equity Selloff
globaleconomicanalysis.blogspot. … ed-in.html

[Green_Bear]

The scary free fall in recent days of US and global stock markets is no surprise to the readers of this column as it has been analyzed and predicted for a while now. The collapse of global equity markets on Monday January 21st is not just an episode of financial contagion from the US stock market to other stock markets.

It rather signals that global stock markets are now beginning to price the following things.

First, the US recession is unavoidable and has already started; and this recession will be ugly, deep and severe, much more severe than the mild month recessions in 1990-91 and 2001.

Second, the rest of the world will not decouple from the US since – as discussed in detail below – many trade, financial, currency, policy, confidence links – lead to a transmission of negative growth shocks in the US to the rest of the world that will lead to a sharp global growth slowdown: 2008 will be the year of recoupling rather than decoupling.

Third, the US stock market has already started to reflect in the last few weeks the consequences on earnings and corporate profitability of a severe US recession.

Fourth, a growing realization that even aggressive Fed easing will not prevent this severe recession, i.e. that we are at the last leg of the stock market’s sucker’s rally and that the Bernanke put has very little value as massive financial losses will increase regardless of what the Fed does.

Fifth, now other global stock markets are now starting to price the effects of the US hard landing on the rest of the world growth, the phenomenon of recoupling. >>>>

The Coming Economic Recoupling and Financial Contagion in Global Stock Markets and Financial Markets: When the U.S. Sneezes the Rest of the World Gets the Cold
rgemonitor.com/blog/roubini/238858/

[ixus]

@Green Bear

rgemonitor.com/blog/roubini/238858/

That’s some read, particularly

Financial Contagion. The fallout of the US subprime meltdown has now led to a broader and more severe liquidity and credit crunch in US financial markets that has now spilled over to Europe, Australia and other parts of the world. This financial contagion depends on a variety of factors: about half of the US securitized instruments – the now disgraced residential mortgage backed securities (RMBS) and the collateralized debt obligations (CDOs) that were repackaging of the same underlying RMBs – were sold to foreign investors around the world. That is why the financial losses of defaulting mortgages in places such as Las Vegas, Phoenix and Cleveland are now showing up in Europe, Australia and even in small villages in Norway as investors all over the globe bought this toxic junk of radioactive risky securities. So we are now observing a growing liquidity and credit crunch in Europe and other parts of the world, a serious case of financial contagion. Since European firms depend on bank lending more than US ones the emerging credit crunch in Europe will hit the European corporate sector and its ability to produce, hire and invest…
…and…
Bursting of Global Housing Bubbles. A cycle of housing boom and bubble followed by a bust has occurred in the US. But similar booms and bubbles did occur in many other parts of the world as easy money, low long-term interest rates and financial innovation occurred in many countries. We have seen such housing booms in Spain, UK, Ireland and, in smaller measure in Italy, Portugal, Greece, France; in Central and South Europe (the Baltic nations, Hungary, Turkey); in Australia, New Zealand and parts of Asia (China, Singapore and parts of India). With a lag we are now observing the beginning of the bursting of such bubbles outside of the US, especially in the UK, Spain and Ireland. Such bust will lead to a domestic economic slowdown in these countries and outright recession in some.

The readers comments were also pretty informative.

[conor_mc]

@Green Bear

The US and the world are experiencing a rare debt deflation. It is both driven by and causing economic contraction as asset prices fall. It’s coming on fast and furious. Debt deflations follow periods of credit excess that created debt financed asset price inflation such as the US experienced in the 1920s and Japan in the 1980s.
What happened next? A couple of charts below, familiar to frequent readers but fresh to newcomers, show what happened in Japan. US policy makers are well aware of the risks and are prepared to do just about anything to avoid a repeat of the error. >>>>>

Reflation without Representation

itulip.com/forums/showthread … #post25295

I always thought iTulip’s main hypothesis centred on inflation - is this an about-face from them?

[Green_Bear]

3 Prior Market Crashes
bigpicture.typepad.com/

[Green_Bear]

@conor_mc

I always thought iTulip’s main hypothesis centred on inflation - is this an about-face from them?

Ka-Poom Theory is a Rhyme not a Repeat of History
itulip.com/forums/showthread.php?t=428

FYI radio interview here - kuow.org/mp3high/m3u/Weekday … 080122.m3u