There is some truth behind it; if I were in an underwater house, I would be sorely tempted to stop making payments and wait for the sheriff to come. I could easily see it being a year until they get around to me, and in the meantime, there may well be a bailout headed my way.
I think we are seeing asset deflation on an tremendous scale; how quickly that translates to consumer price deflation is a complete mystery to me.
Can’t Fed and Treasury directly pump the (consumer) money supply by distributing a stimulus payment, issuing Treasury notes, and then buying those Treasury notes right back? It seems to me that the money supply can be pumped in a number of different ways, especially if deflationary expectations have not yet taken hold. If deflationary expectations have taken hold, then if Treasury issues stimulus payments, consumers will save the money, or use it to pay down debt, and the money supply will not be inflated. This was Japan’s trap, no?
The speed with which dollar strength subsequently changes will illustrate the extent to which we are in consumer price deflation. I do not think either inflation or deflation sets in as quickly as exchange rates have recently changed.
Chaos. We are in the midst of chaos that I find frankly alarming. The Nikkei is down 5% as I write this. I suspect the drop in the Nikkei is partly due to Sony’s poor forecast, which is partly due to increasing Yen strength, which makes Japanese exporters less competitive.
