folks need to bear in mind a crucial distinction between “inflation” and price inflation. inflation is here –the supply of dollars per underlying value has already been tremendously inflated. what we don’t see in the general economy is a commensurate ‘price’ inflation –and we can thank falling demand for that. Curing that hangnail by cutting off that finger, sorta. the needle that has to be threaded given the premise of economic recovery is that when employment and output begin to rise, the Fed can start ramping up interest rates to damp inflation. if not for the need for mortgage rates to stay low, Fed should start this so-called ‘exit strategy’ too soon rather than too late, as too late may ignite rates at the long end of the bond mkt — which the marketplace controls, as opposed to the short end, which the Fed controls. mortgage rates peg to the ten year benchmark –and the higher the rate goes, the less affordable the mortgages, and the less value of the real estate in bank portfolios.

So banks look at the parabolic money supply growth, see higher rates ahead and depreciating rather than appreciating loan portfolios. In order for the fiat money to appreciate these real estate portfolios, housing demand has to rise, which requires job creation, which requires business expecting better sales, which the fiat money is supposed to create, but can’t until it is lent, which it won’t be because banks are worried about money inflation = asset deflation. This is the ‘what’s different this time’ –and it has everything to do with the system operating within a powerfully anti-market politics. Price deflation is like a union –great if you have one of the fewer and fewer jobs your system is allowing.

setting aside the debt tsumami and just in terms of current cash flow, maybe it will all work out –the stock market seems to be saying so. But look closely at the daily trading volumes. Volume verifies price –price without volume comfirmation is best seen as dangerous information. dangerous in either direction, buy or sell –when you want to buy and don’t, even tho price says to but volume doesn’t, you stand a good chance of missing the train. Which if the train pulls out of the station and explodes, you were lucky to have missed.

lawrence/69;