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Now that even Greenspan has mentioned the D word, I've decided to put a lot of funds into CD's. I'm hedging by buying 3-yr double bump up CDs from Independence Savings & Loan at 2.25% (2.27% APY). If I'm wrong and interest rates rise, I can bump up twice. But if we go Japan style, three years won't be long enough so we will be in the soup. I've decided to be optimistic in my old age so I assume that we will recover at least after Dubya is defeated in the next election. But I was wrong in my first 65 years in projecting disaster. Can I be wrong again?

I had a friend who sold all when Dubya played fast and loose with the last presidential election. Wish I had listened to him closer but am enjoying the little bull market we are having as long as it lasts. Even have a couple of stocks hitting all-time highs the last few weeks.

brucedoe
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BD:

That's interesting.

I think it would be best to pay off all debt ASAP. Your balance with your creditor will remain the same while your dollars shrink.

Splotto
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But what if you've got no debt?

PF
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Then you buy "Gold/Silver" (both the commodities and the producers), the only "true "store of value", as fiat currency depreciates......worldwide, not just locally.

But what if you've got no debt?

PF


"No debt" is a "good" position to be in in times like these. Buying other people's "debt", can also be a winner as currency looses purchasing power, i.e. your "returns" can purchase "more" of whatever you choose to buy.

IMHO, every allocated portfolio, needs a good stiff "propup" of commodities & cash and debt instruments to survive these times.

However, from where I sit, the macro problems seem to be an excess of "Production Capacity", not a weakness in "Demand". And if I'm "right"? (unknown at this point), then we can only solve this "excess capacity" problem with further cuts in employment, and productive capacity through BK's, and plant consolidations, making the situation even tougher to control then it already is!

This is a Japan style problem imho........and if that is correct, then we are doomed to repeat the Japanese cycle of "deflationary" excesses....

But Lok & I have disagreed on this point before. I still "see it" in the macro numbers, especially the employment data, but only time will tell.

Problem is, IMHO, that the "Tax Cut" proposals do NOT adddress this issue. The "Supply Siders" can't get their collective heads outta their collective arses, to see that "Demand" NEVER was the problem! Rather it has been supported by "Debt", consumer, housing, trade, and government deficits, type of debt....and that kind of "Demand Growth", can not in my view be supported for very much longer.

Doom&Gloom? Maybe, but the deflationary "Over Capacity" signs are everywhere in the current macro numbers. And unless the FOMC can "reflate" the money supply sufficiently, I think the ever shrinking US$ will continue to "sign" the problem, with no end in sight, then a Japan style "deflated Economy", has to happen here as well...

All IMO of course.

KBM (BWTFDIK? just a "Dismal Scientist" is all ;o)

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Kent,

I think our disagreement is on the likelihood of the Japan scenario, not on your argument for why it might happen.

And I think we're basically talking about the same thing when I say the need is on the demand side and you say overcapacity and debt. Companies do not need an influx of capital to produce more stuff: they need someone to buy what they already produce, and with most people having too little capital to spend, except by getting deeper and deeper into debt ("I owe my soul to the company store"), they can't spend.

Now, I think you're probably also suggesting, and I agree, that there is overcapacity compared to real needs. If people, who can't really afford extravagent living, stop living as if they could, then you see real deflation in non-essentials.

Most of us agree the economy is in much bigger long term trouble than the politicians admit. I tend to think we'll get stagflation not deflation, or deflation in non-essentials, with high unemployment, and inflation in essentials, such as health care, energy, and insurance. (And regressive taxes will go up.) In any case, throwing money at the rich is not going to fix anything, since the only possible reason for putting money in the hands of those who can afford to invest it is to provide working capital, and where capital is needed now is on the demand (or debtor) side.
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Yup....in a "nutshell"....

Now, I think you're probably also suggesting, and I agree, that there is overcapacity compared to real needs. If people, who can't really afford extravagant living, stop living as if they could, then you see real deflation in non-essentials.

Most of us agree the economy is in much bigger long term trouble than the politicians admit. I tend to think we'll get stagflation not deflation, or deflation in non-essentials, with high unemployment, and inflation in essentials, such as health care, energy, and insurance. (And regressive taxes will go up.) In any case, throwing money at the rich is not going to fix anything, since the only possible reason for putting money in the hands of those who can afford to invest it is to provide working capital, and where capital is needed now is on the demand (or debtor) side.


Which is why you're the teacher....and I'm the "practitioner"....LOL

But "Stagflation"? maybe we ought to "coin a new phrase" here, how about "De-Stagflation"?

Cause I "see" the worst of all possibilities unfolding......i.e. commodities deflation, continuing lack of productive "pricing power", rising "essential services" prices, and effective tax rates (especially at the local levels), and "slowing" demand accordingly for goods and services, with flat to no growth "company profits", year after year.

A typical Japanese scenario imho, coupled with burdensome ever increasing debt, across all sectors of the macro economy. Along with sinking LT interest rates and employment utilization numbers (wages & hours data).

I've never seen this scenario unfolding before, and I've been at this stuff for quite awhile now. We're in unchartered economic territory here, and I believe that the FOMC sees it as real, and very dangerous, much more so then any pending "price inflation" that might arise out of continued M2 money supply growth.

Can the administration break this pattern? I don't know? But the recent 12 year history of Japan, gives me phase to consider the possibility that we can NOT!

All I do know, is that the current 3 year Bear Mark will not end until the macro economy "tell's it to".....fundamentally. So I prepare for it as best I can, and seek capital preservation as a "counter" to what appears to me to be a "pending Depression".....

KBM (who "knows" less today then he did 4 years ago....LOL)
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PF:

Of course, if you hav none at all, then you would move to the next on the list. It's an interesting topic. I would like to see what the opinions are here about investment options during deflation.

Splotto
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