This is probably the most important financial question of our time. I have been trying to determine what is going to happen given the available information and it has been a really rough go.

Inflation Subsides and Deflation occurs.
The monetary supply is way up, commodities are way up, yet housing prices are on their way down. Bond returns are way below inflation but there is still domestic and international demand because treasuries are still considered to be a safe haven. America has become cheap for foreigners. Not particularly cheap for those of us who live here. Taxes and fees are high.The savings rate is low (negative) for americans. The national debt is approaching 10 trillion. The banks are tightening credit because they’re WAY overlevereged. What this means to me is our economy is being repriced. Our living standard is on its way down. We have been having a party on credit for the last 20 years but the party appears to be over.

Anyhow, “people don’t have cash” which means that if you do you are in a better position. People are carrying alot of debt which means if you aren’t you are in a good position. Also, since the banks are reluctant to lend and people are illiquid then look out folks housing way still have a ways to go on the downside. Banks may demand bigger down payments to protect themselves.

On the other hand if foreigners all of a sudden decided to dump their treasuries then we would get hyperinflation and all bets would be off. I think the fed is trying to push inflation, but foreigners are fighting US Dollar inflation because they hold so many dollars and they don’t want to see them become worthless. I guess I could say that the chinese are my friends because they are protecting the dollar and the US Federal Reserve is my enemy because they are attempting to save the economy by inflation thereby reducing my real savings. WIERD!!!