Reply #16: Whitney: The Deflation Time-bomb

[DemReadingDU]

1/10/08 The Deflation Time-bomb Mike Whitney

some snippets

We are to about see how much George Bush really believes the “supply side” mumbo-jumbo he's been spouting for the last 7 years. Last week's Labor Department report confirmed that unemployment is on the rise (5%) and that corrective action will be required to avoid a long and painful recession. There's a good chance that the Chameleon in Chief will jettison his “trickle down” doctrine for more conventional Keynesian remedies like slashing interest rates, government programs, and tax relief to middle and low income people.

The Dow Jones is now 10% off its yearly high, the official sign of a correction. More important, equities blew through their support levels indicating a basic change in the market's trajectory. Its a primary bear market now and any rebound will be temporary. There's still a lot of fat to be trimmed before overvalued stocks return to the mean. No wonder Bush is nervous.

Before he left on his “Victory Tour” of the Middle East, Bush said:

"When Congress comes back, I look forward to working with them, to deal with the economic realities of the moment and to assure the American people that we will do everything we can to make sure we remain a prosperous country."

Summary: When banks don't lend and consumers don't borrow; the economy crashes. End of story. The whole system is predicated on the prudent use of credit. That system is now in terminal distress. Everyone to the bunkers.

Perhaps the whole “inflation-deflation” debate is academic. The real issue is the length and severity of the impending recession. That's what we really want to know. And how many people will needlessly suffer.

lots more...
http://www.informationclearinghouse.info/article19039.htm