Australian Money Forum

[wulfgar]

It goes completely against my grain. I was a child of the inflationary 60's and 70's.
But the trends I'm seeing are pointing to a greater deflationary event than the 30's.
One by one the CB's of the world have ceased expanding their repective M0+'s. The NY Fed stopped in mid 2004 when the Bank of Japan stopped buying their debt. Australia seems to have stopped in mid 2006. The world is on a slender thread from the Chinese CB. If they stop buying T-bonds then large interest rate increases will occur. The Chinese money pump will stop and everything will come to a halt.
Nations expand their M0+ by trading T-bonds on repo. If they all start pulling away from each other, then world liquidity will contract by 25%. And that will be just phase one!
(It's really great system trading on repo. Australia prints some dollars and America prints some dollars and they exchange them. Then the money supply of both nations is expanded. But if the bond market cracks, then they withdraw. And much of the money supply starts to disappear!)
Not that gold will suffer like everything else. In such an evironment CB's go back to backing currency with gold. Just as they did in the 30's.