The Risks of a Catastrophic Deflationary Collapse

Kosams · 11-21-2009, 12:02 PM

The Risks of a Catastrophic Deflationary Collapse
by Lawrence Tout | November 3, 2009

It is ironic that mainstream economists and politicians are barking about the end of the recession and the beginnings of an economic recovery, when the hidden reality is that the underlying health of the economic system not much better (and some would argue worse) than one year ago when panic reigned in the markets.

A combination of failed financial regulation, endemic corruption and computerized fraud have synergized to create a very fragile financial system. A system that is so incredibly huge, so incredibly un-transparent and so very unstable, that it currently still teeters on the brink of a greater collapse. One year later the shocks of the initial crisis are still reverberating around the markets and we have yet to see any concrete action taken to improve weak underlying economic fundamentals.

Many comparisons have been made to past crises and prognosticators argue whether we will see deflation or inflation, but its very possible that such arguments are invalid for three main reasons that predominate in markets today more than at any time in the past; these being mass, velocity and interconnectivity. Not only are the size of the debt/derivative/fraud problems so utterly underestimated and so much larger than at any other time in our history, but also modern day computer-driven trading means that should a crash sequence be initiated, subsequent price action declines will manifest very rapidly indeed. Combine this with the fact that global markets are now so interconnected and you have the recipe for the mother of all crashes.

Continues...

11-21-2009, 12:02 PM	#1
Kosams Avalon Senior Member Join Date: Sep 2008 Location: Adelaide, South Australia Posts: 29	The Risks of a Catastrophic Deflationary Collapse The Risks of a Catastrophic Deflationary Collapse by Lawrence Tout \| November 3, 2009 It is ironic that mainstream economists and politicians are barking about the end of the recession and the beginnings of an economic recovery, when the hidden reality is that the underlying health of the economic system not much better (and some would argue worse) than one year ago when panic reigned in the markets. A combination of failed financial regulation, endemic corruption and computerized fraud have synergized to create a very fragile financial system. A system that is so incredibly huge, so incredibly un-transparent and so very unstable, that it currently still teeters on the brink of a greater collapse. One year later the shocks of the initial crisis are still reverberating around the markets and we have yet to see any concrete action taken to improve weak underlying economic fundamentals. Many comparisons have been made to past crises and prognosticators argue whether we will see deflation or inflation, but its very possible that such arguments are invalid for three main reasons that predominate in markets today more than at any time in the past; these being mass, velocity and interconnectivity. Not only are the size of the debt/derivative/fraud problems so utterly underestimated and so much larger than at any other time in our history, but also modern day computer-driven trading means that should a crash sequence be initiated, subsequent price action declines will manifest very rapidly indeed. Combine this with the fact that global markets are now so interconnected and you have the recipe for the mother of all crashes. Continues...