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My opinion is that the return to "normalcy" is not feasible. One of the main questions to be answered is the winner of the war between inflation and deflation. Just last summer it appeared that inflation was winning with 150 dollar a barrel oil and Ice cream being sold in 1.5 qt containers for about the same price (although oil is down, the ice cream is still in the 1.5 qt containers and still costs the same as the 2 qt used to.) Then the bursting housing bubble and the inevitable deleveraging kicked in with deflation actually happening. Then the fiat money moguls in the world' s central banks with Helicopter Ben leading the charge kicked in with trillions. Governments added their stimulus's.
It feels to me that we are in the eye of the storm. The effects of the needed downsizing, the massive unemployment, the needed increase in American household savings (which appears to be happening along with the government keeping the Anerican debt level the same), plus the fact that Europe still has some shoes to drop, say much more is about to come.
At first I thought a kind of 70s stagflation would ensue but there will be no wage hikes to fuel wage-price inflation. Computerizeration of manufacturing > Globalization has effectively stopped the 70s scenario.
I know it sounds zany but I think what the Bilderbergers want to happen to the American dollar will have an effect on what happens. Some of this is a plan but with unintended consequences.
Unless there is some technological breakthrough in energy storage or new energy sources,etc, oil is sure to rise again. There are also bad black swan possibilities like war - between Pakistan and India - between Israel and Iran and then the US. Or others like a real pandemic plague or something like that wheat rust blight that is happening
Every financial crisis is unique. We could have depression and dollar depreciation > inflation of commodities. The financial system could still have a systemic collapse or as John Mauldin says - just a muddle through. Who knows? Prepare for the worst and keep an open mind - “it’s a good thing to have an open mind... just not so open your brains fall out.” Bertrand Russell

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2/17/09 3:49 PM Delete