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The Historical Stakes of Government's Grand Experiment

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World history hangs in the balance of powers.

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The Hump has arrived -- Hump? What Hump? -- as we reach the midpoint of our trading week. With my weekly syndicated scribe already taking a look at The Main Event: Inflation vs. Deflation, I wanted to get physically random with some thoughts as we find our way through this freaky fray.

Before we do, I wanted to add another layer to our 'flation debation, this one from one of the smarter cookies in the 'Ville and one that the Old School knows quite well. And I quote:

"Like everything else, our fate depends on what government decides to do. If they don't monetize enough, treasury rates in the US won't explode up. There isn't enough demand internally (as investors reduce risk) to offset lower external demand from lower trade. In this scenario deflation is dominant and US stocks go down, the dollar goes up, and the economy slips into depression.

If they monetize too much, treasury rates could explode higher. Internal demand will evaporate -- as will external demand -- as everyone tries to get out of the dollar at the same time. In this scenario, we get hyper-inflation and US stocks could explode up, the dollar goes down a lot and what will be left is a dysfunctional economy where deflation will soon ensue down the road.

I personally don't think they can get it just right; there is too much debt that is dramatically affecting the velocity of money, which as you say is paramount in a finance-based economy. Gun to head, I favor scenario one for a while, then scenario two."


Much obliged, now back to our regularly scheduled Random Thoughts:


R.P.

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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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