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Hello SWR board.

I wandered over here following the invite from hocus on the prudent bear board. Hocus has suggested that it is OK to broaden the scope of topics if they relate to SWR.

I am somewhat suprised to not see a topic on inflation vs. deflation.
I would like to start one since I believe the concept is central to the viability of any SWR model.

I have long followed mannfm11 at Pru Bear, but haven't registered there for a variety of reasons. I suggest researching that board for extensive background on a question I'd like to raise especially to mannfm11.

To try to summarize my take away from mannfm11's previous comments: Deflation is almost inevitable in the US due to the drying up of liquidity. The treasury may try to push money on banks in an effort to get it in circulation, but banks won't lend without a rational expectation of both getting their principle back along with some return.

I've long considered this as somewhat counter-intuitive, since we basically have the fed promising to drop money from helicopters if needed. I'd been unable to come up with a good counter argument to mannfm11's points until somebody pointed me to

http://www.presidency.ucsb.edu/site/doc ... 933&id=157

reading some of this, I think I found how the government may get around the banks rationality to get money in people's hands; as they have done this before:

snippit:

Then we come to the relief that is being given to those who are in danger of losing their farms or their homes. New machinery had to be set up for farm credit and for home credit in every one of the thirty-one hundred counties of the United States and every day that passes is saving homes and farms to hundreds of families. I have publicly asked that foreclosures on farms and chattels and on homes be delayed until every mortgagor in the country shall have had full opportunity to take advantage of Federal credit. I make the further request which many of you know has already been made through the great Federal credit organizations that if there is any family in the United States about to lose its home or about to lose its chattels, that family should telegraph at once either to the Farm Credit Administration or the Home Owners Loan Corporation in Washington requesting their help.

end snippit:

This is from FDR's fireside chat on Oct 22, 1933.

So here we have a precedence that if things get bad enough, the government will bail out the banks by assuming loans of questionable value. They of course put it in different terms.

It is easy to imagine the Treasury dept using banks as their agents to federalize mortgages and credit card balances. The government "helps the poor people"￾; the banks get new management fees; everyone who matters wins. They once again privatize profits and shift losses to the public purse.

Comments are invited as I hope to journey with you-all on the road to true understanding, wherever that might lead us...