The Lost Decade

They caught these charts from the Wall Street Journal (WSJ) over at The Big Picture. The full WJS article: Stocks Tarnished by 'Lost Decade'. I first posted about “The Lost Decade” in my September 24th, 2007 pos The 11th Hour. I’ve re-posted the updated chart today.

“The Fed had a simple choice: INFLATE or DO NOTHING. Had the Fed done nothing the housing market and therefore the economy as a whole would have CORRECTED by falling into a MANAGEABLE and DESERVED recession. Instead the Fed chose to cut rates and add liquidity. In other words: INFLATE the entire system. The ultimate results will still be a recession. Only now the recession may have been postponed, possibly for years, and when it does hit it will be neither MANAGEABLE nor MILD.” –TheFinancialNinja, The 11th Hour, 09/24/07

What I overlooked at the time, is the significant DELETRIOUS effect on money supply that the wholesale DESTRUCTION of credit will have. Although the Fed will try to inflate, I do not think they will be able to. I’m firmly in the DEFLATION CAMP.

Notice how RATE OF CHANGE in the monetary base is decreasing rapidly? (Source: Federal Reserve Bank of St. Louis) The monetary base is set to go into CONTRACTION, much like after the Tech Bubble burst in 2000… only much much worse and for much much longer.

$$
$Now $
$ Hear This: $
$ Money is debt. $
$ No debt, no money. $
$ Less debt, less money. $
$ Less money, less inflation. $
$ Even less money, is deflation. $
$ Because $
$ "Inflation is always and everywhere $
$ A monetary phenomenon." $
MiltonFriedman

(Money Tree from Sudden Debt)

The Lost Decade refers to:

-The post-war period in Britain from 1945-1955.

-The 1980s in Latin America, as the area experienced a significant economic depression due to the two oil crises of 1973 and 1979. In addition, fluctuating interest rates on lending agreements went up following these oil price shocks. The supply of U.S. dollars in the international financial markets, broadly available after World War II, was channeled into OPEC countries when the oil prices went up in the 1970s. The reduced supply of dollars in the international debt markets has pushed interest rates up on debt agreements. This chain of events has contributed to a major increase in the international debt in Latin American countries in the 1970s and 1980s.

-The 1990s in Japan, following the collapse of the Japanese asset price bubble.

Soon, America will join that list.

Related Posts:
Really Scar Fed Charts, Why Bernanke Will Furiously Cut
Commodities Unravel, Confidence Collapses