Uncle Al's Conundrum Part Two
Scenario One:
Economies as forecast, slow and cool, commodities prices would temporarily decline, this would lead to less stagflation, keeping rates low, the dollar weak and further lowering borrowing costs. This could invert the yield curve.
Eventually due to the weak dollar, the commodities costs creep back up, leading to an even more severe stagflation. The Asian market keeps buying our debt and we keep consuming. This would cause another round of excess liquidity and would further fuel the global asset bubbles which are currently out of control.
The end result of this scenario is not pretty, it is an out of control, full tilt boogie, E ticket ride, wherein the operator does not know how to apply the brakes. Much like in real life, at breakneck speeds, without applying the brakes you wind up smashing into a wall and are eventually scooped up as road kill.
Increasing leveraged speculation, excess liquidity chasing higher yield, ever increasing asset bubbles, stagnant income levels and rising commodities caused stagflation all lead to one thing. With interest rates already so low, that they cannot be lowered further, we wind up with a Japanese style sub zero interest rate and its attendant deflation and depression on a global scale.
The asset bubbles would burn themselves out and we would reduce consumption drastically, then there is a systemic implosion and a world wide depression results.
Look for Scenario Two in Uncle Al's Conundrum Part Three
See Uncle Al's Conundrum Part One February 20, 2005
http://naybob.blogspot.com/2005/02/uncle-als-conundrum-part-one.html
Economies as forecast, slow and cool, commodities prices would temporarily decline, this would lead to less stagflation, keeping rates low, the dollar weak and further lowering borrowing costs. This could invert the yield curve.
Eventually due to the weak dollar, the commodities costs creep back up, leading to an even more severe stagflation. The Asian market keeps buying our debt and we keep consuming. This would cause another round of excess liquidity and would further fuel the global asset bubbles which are currently out of control.
The end result of this scenario is not pretty, it is an out of control, full tilt boogie, E ticket ride, wherein the operator does not know how to apply the brakes. Much like in real life, at breakneck speeds, without applying the brakes you wind up smashing into a wall and are eventually scooped up as road kill.
Increasing leveraged speculation, excess liquidity chasing higher yield, ever increasing asset bubbles, stagnant income levels and rising commodities caused stagflation all lead to one thing. With interest rates already so low, that they cannot be lowered further, we wind up with a Japanese style sub zero interest rate and its attendant deflation and depression on a global scale.
The asset bubbles would burn themselves out and we would reduce consumption drastically, then there is a systemic implosion and a world wide depression results.
Look for Scenario Two in Uncle Al's Conundrum Part Three
See Uncle Al's Conundrum Part One February 20, 2005
http://naybob.blogspot.com/2005/02/uncle-als-conundrum-part-one.html
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