Maggie's Farm

The rule of law is disappearing in plain view. Mortgage contracts will be subject to revision without the consent of the mortgage holder. Contractual payments to AIG employees are being voided by this targeted tax, which may not be legal anyway.

The left has promoted legislation from the bench for a long time. The trend is now accelerating.

The rule of law is the fragile line in the sand that promised to keep the citizenry free from the tyranny of government.

We are living in increasingly dangerous times and the potential threat from our own government is rapidly growing.

And your worldview is................?

I was taking a very different angle. If you didn't get me drift, that's fine. You are arguing about the trees and I was attempting to address the forest. Now back to the trees...

I agree with your comments about "religion in general" and the C-Church.

I also recognize that all people have "feet of clay". Just because some people are Christians and claim a certain moral standard doesn't mean that each individual will always meet that standard. Don't get me wrong, I am not excusing the behavior. Ultimately, we live by grace and not the law. May I suggest a thorough reading Paul's epistle to the Romans?

Jappy,

It is a great question and I have been thinking about inflation versus deflation/economic collapse for months.

I could write a doctoral thesis (and would if I could afford it) on the current crisis and the actions taken, including the subject of quantitative easing.

In short, the answer is it depends. There are many variables and I would like to be honest and not dogmatic.

We are dancing on the edge of knife right now. Some of the levers are under the control of the Fed and Treasury, but there are also externalities that could change the expected outcome. One of those externalities will be the magnitude and frequency of sovereign defaults.

There are also multiple issues to consider. One is the level of government spending and taxation, which is separate from the Fed. Second is the Fed buying newly issued Treasury debt or conducting purchases in the secondary market. Third, the level of cooperation between the Fed and Treasury is unprecedented and what does it mean for the independence of the Fed and it's ability to pursue it twin mandates of price stability and economic growth. Fourth is the velocity of money with the flip side being the liquidity trap. Fifth, economic fundamentals will permanently change of Obama is able to engineer a government takeover of health acre that accounts for 1/6 of the economy. Sixth, cap and trade represents a $1.9 trillion tax increase over ten years and will have a huge macro-economic impact.

Our national debt is roughly $11 trillion, which is approximately equal to GDP of $11 to $12 trillion and roughly 4.2 time total federal government revenues of $2.6 trillion. The national debt and unfunded mandates total $55 to $65 trillion, depending upon who you believe.

(The proposed Obama budget is $3.6 trillion that will result in a more than trillion deficit and it projects a doubling of the national debt within ten years.)

This is a long way of saying we are up to our eyeballs in debt (as is the rest of the world) and it is doubtful that there are sufficient revenues to keep up even if you confiscate all of the income of the wealthy (> $200,000).

Historically, governments have chosen to inflate their way out of the problem. I believe the Fed has announced that this is their intention, although it is couched in terms of economic growth.

We are currently facing deflationary pressures, although the inflation metrics this past month were positive. The collapse of demand is inherently deflationary. When we will turn from a recessionary/deflationary economy to an inflationary economy cannot be answered precisely.

I think the highest probability outcome is stagflation. The rate of inflation has the potential to be very high, but it is not a forgone conclusion. On balance, I am thinking about how to position myself for an inflationary economy.

I plan to remain vigilant.

I hope this helps.

I apologize for the typos. I should have proof read it, but it is late and I had a couple of drinks at dinner tonight.

This is a topic that needs to be discussed regularly. I am sure MF will throw a juicy tidbit into the mix every now and then to keep the comments flowing. Sometimes the financial posts like Monday's $11.2 trillion hit do not get many comments, although I often hit the bait - good fish that I am.

In any case, we can ask each other questions as you, Jappy, did tonight.