Remember this guy?

He is totally discredited, at least if you listen to the rampaging inflation geniuses.  The problem is that this pesky issue in Washington is probably going to be deflationary in one way or another.  Whether they raise the debt limit or not, some measure of austerity is going to attend the move.  This will suck dollars out of some artificially stimulated areas.

Now, if the debt ceiling is raised, default is avoided and the economy decelerates at a managed pace, then T Bonds will probably gain a bid and we can proceed with a DEflation impulse and business as usual in preparation for Ben Bernanke's finest hour as a deflation fighter.  If however, they fuck it up in Washington, the result - in my opinion - is going to be one hell of an impulsive deflation issue as market forces withdraw liquidity and handcuff Bernanke.

But it gets more complex than that.  The deflation may come after a hyperinflationary panic.  We just do not know how a panic environment is going to play out.  I am not going to sit here and pretend to have it all mapped out.  Prechter doesn't, Sinclair doesn't.  Nobody can control this thing.  The moving parts are too complex and too many.

It would probably be wise to just remember that we are and have been on a decades long continuum of deflationary correction impulse met at every turn by inflationary policy.  If T bond yields go asymmetrical, the continuum ends and we are in Wonderland.  There will be Prechter, there will be Sinclair and there will be a hell of a lot of blow horns in there pitching agenda. 

So, it is probably a smart thing to know what you own, why you own it (and that includes any debt... you own your debt after all) and take coming events as they unfold.  Preconceptions are dangerous now, and balance and perspective never go out of style.

Stream of consciousness ends here....

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