Judge for Yourself!

Never have I disagreed with an article more, or believed it more necessary for my Readers. The core of this conundrum lay in his exacting description of all the disastrous elements currently in the American economy (i.e., exactly those things I am afraid of), but often opines that the economy will jump in the opposite direction to what I believe. Nouriel Roubini has often done this to me, as he places different weight to economic factors than myself, and swerves left as I dodge right, and vice versa. I could encapsulate the Roubini Argument in a way which he would disagree with, but might straighten it out for my Readers:

Consumer Demand is in decline, and lowered Commodity Pricing may or may not be a curative for that decline. The Trouble resides in the fact that current Consumer Demand could be filled with 2002 Production Schedules, and the World economy could be facing an Unemployment level increasing by 125 million rather easily under some models; an Expectation which would be disastrous for Consumer Demand values down the Road. The World economy will really tank if it goes this Route, because We are talking Great Depression effects if it maintains this Production Curve.

I will attempt to counter the Roubini Argument on a Point by Point basis, and Nouriel will state I have done nothing of the kind if he reads this Counter-argument. First, he states that the massive inflow of liquidity is not Inflationary, and that central banks will mop up excess liquidity; central banks cannot do this if the Economy has interim raised Manufacturing Processing Costs, which they are already doing. Second, he asserts this liquidity will not be Inflationary if not monetized, a ridiculous assessment if the Money flows into the Economy; neither Market or Main Street can tell the difference between Dollar and Treasury bill. Third, the genie is already out of the Box, and Inflation cannot be controlled by the Fed with regulation of bank rates in a declining Economy. Fourth, the repricing of Debt when it becomes an increasing segment of fiscal accounting, is itself Inflationary. I would add that the viability of Treasuries are tied to the Import of foreign Goods, and the rating of American Treasuries is already suffering from numerous years of excessive borrowing on the World markets.

We are not starting into a period of Deflation, but are entering into a period of Stagflation; one which central banks are trying hard to maximize. lgl