[quote=barnaby33]
Fearful, all things are temporary care to hazard a guess? As to the unwinding of the carry, that is a knock on effect of the deflation. The Japanese have sustained enough losses that they are saying no mas. That currency is being repatriated yes, or rather parts of it are. I suspect that many of the Japanese banks that have been doing this are sustaining losses though which chills lending, which shrinks the money supply. Though I say up front I have no proof or insight.
Josh[/quote]
The Fed and Treasury are trying to keep the financial systems functioning. That is a much more pressing problem than inflation or the economy. One guess would be that once some semblance of financial system stability is reached, attention will be turned to the economy. This might happen over a month or so.
We are in such chaos that anything can happen. There are factions in China that are pushing for a move away from an export based economy – decoupling. The economic situation is weakening fast in China, and why would not the country start spending its $1.8 trillion in foreign exchange reserves to bolster the internal economy?
Conversely, the rest of the world could fall apart and the U.S. is the only economy left (relatively) standing – and the interested parties wish to preserve the financial status quo. The dollar would rise pretty rapidly in that case.
Whatever happens, it seems to be accelerating. Feedback loops galore! I thought of another one: Homeowner bailouts could worsen the situation, as the prospect of a bailout will increase the propensity for people to simply stop paying their mortgages. I, for one, would love to be in an underwater house right now.
