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Omega Letter - Commentary Discussion

Yanking the life-support from Fannie and Freddie
Posted By: Noreene
8/17/2010 4:47:35 PM

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Original Commentary Link
3 Shout AMEN!Amen ~ 4 PrayingPraying

Member Comments:
Our economy is lined up like dominoes..when one area starts falling, others are bound to follow.. Thanks again, Ed D
Reply # 1 - ReplyTo ID: 6256


Posted By: Medic28 -
Date: 8/18/2010 8:32:38 AM
5 Shout AMEN!Amen ~ 6 PrayingPraying

Comments: ok, ed. i have a question... I dont quite understand why deflation is a bad thing, and why is it that deflation is always followed by hyperinflation?
Reply # 2 - ReplyTo ID: 6259


Posted By: Ed D. -
Date: 8/23/2010 10:13:37 AM
4 Shout AMEN!Amen ~ 4 PrayingPraying

Comments:

It's because debt is fixed and asset prices are variable.  For example, if you own a home that is worth $150,000 today and owe $140,000 and deflation occurs, your asset's value will fall.  Lets say it drops to $125,000.  You still own $140,000.  Prices on everything drop squeezing manufacturers and retailers and ultimately people start losing their jobs because profits disappear. 

As the cycle continues, more people become unemployed and tax receipts and all other economic activity slows further. 

Hyperinflation usually follows because the government, in an effort to save itself, starts printing money and lowers the real value of the currency.  Then hyperinflation can incur causing prices to skyrocket. 

This has  happened a few dozen times around the world in the last 100 years or so.  It is also contagious because our markets are so inter-linked. 

Hope this  helped explain. 

Ed