The Next Leg Down

When Deflaction Becomes Entrenched
The Next Leg Down

By MIKE WHITNEY

Collapsing home prices and credit markets continue to put downward pressure on consumer spending, forcing the Federal Reserve to take even more radical action to revive the economy. Last week, Fed chief Ben Bernanke raised the prospect of further monetizing the debt by purchasing more than the $1.75 trillion of Treasuries and mortgage-backed securities (MBS) already committed. The announcement sent shock waves through the currency markets where skittish traders have joined doomsayers in predicting tough times ahead for the dollar. Foreign central banks have been gobbling up US debt at an impressive pace, adding another $60 billion in the last three weeks alone. That's more than enough to cover the current account deficit and put the greenback on solid ground for the time being. But with fiscal deficits ballooning to $3 trillion in the next year alone, dwindling foreign investment won't be enough to keep the dollar afloat. Bernanke will be forced to either raise interest rates or let the dollar fall hard.

Export-led nations are looking for an edge to revive flagging sales by keeping their currencies undervalued. But the strong dollar is making it harder for Bernanke to engineer a recovery. He'd like nothing more than to see the dollar tumble and reset at a lower rate. That would reduce the debt-load for homeowners and businesses and send consumers racing back to the shopping malls and auto showrooms. Perception management is a big part of stimulating the economy. That's why the financial press has been air-brushing articles that focus on deflation and shifting the attention to inflation. It's an effort to kick-start consumer spending by convincing people that their money will be worth less in the future. But deflation is still enemy number one. Rising unemployment, crashing home prices, vanishing equity and tighter credit; these are all signs of entrenched deflation.

http://www.counterpunch.org/whitney05262009.html

"Deflaction"?


Ps, good article none the less!

Just an idle and perhaps too Freudian question.

Your "reach for your dreams" quote.
Does the rocket ship imply the Earth no longer holds those dreams???

Present day does not describe the possibilities of reaching for our dreams when people are struggling and facing such hardships. Your question asks a accurate statement of the mess we have here on Earth...but we must Keep Hope Alive so WE CAN accomplish reaching for our dreams in the future. :hug:

:fistbump:

Either way you look at it we are FUCKED.