Hyper Inflation in the Confusion Market

Here I was ready to not post and then a startling news story breaks and I had a thought I wanted to write about from earlier in the day! Tomorrow I will be prepping for a Friday fishing trip to the Quabbin Reservoir, so certainly no post.

Running Out the Clock Explained
I have harped on the banking/government/FED/Treasury unified theory of running out the clock. By my line of thought, hiding losses and providing "liquidity" are the two steps decided upon to try ans wait out some kind of material improvement. Today Calculated Risk had an extended excerpt from an interview given by Bryan Marsal, CEO of Lehman Brothers Holdings (he is overseeing the unwind) that explains this all far better than I can. Here is the game plan from an insider:

One of my partners said yesterday that we are going to call this phase the "extend and pretend" phase in our economy. Which is you extend someone's maturity - because they are going to default - and you pretend that business will come back or that leverage factor is going to come back.

Then we'll enter phase two, which he said is the request to extend or "amend".

Then "send". In other words send the keys.

That is the phases we are in right now. Everyone is trying to buy time, as opposed to dealing with the leverage, they are trying to buy time. Whether you are a banker or a company, they are all trying to buy time. I don't see the leverage coming back, and I don't see the consumption of good and services coming back.
Bryan Marsal, CEO of Lehman Brothers Holdings.

And there it is plain as day.

Now one might wonder why the entire banking sector, the government, and companies across the board think playing for time is going to work. Perhaps they know something we don't. I was thinking about this another way:

If debts are going to be rolled over into new never to be paid loans guaranteed by the government, then the losses may be able to be hidden for as long as no major "call in" occurs.
Sick and sad but that is what the deal is.

Goldman Sachs: The Story with no Ending
This evening there is a story so important, so world changing, and so believable that you should at least take a look before I kill off all the excitement (from Market Ticker):

**FLASH** Goldman Code Theft Bombshell
from DailyKos:
...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.
Two things come out of this:
1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...
(2. ... is way off point....)

God help Goldman if this is true and the government goes after them. This would constitute massive unlawful activity. Indeed, the allegation is that Goldman alone was given this access!
God help our capital markets if this is true and is ignored by our government and regulatory agencies, or generates nothing more than a "handslap." Nobody in their right mind would ever trade on our markets again if this occurred and does not result in severe criminal and civil penalties.

I encourage the readers to check out Market Ticker and the links to Daily Kos (I know, a pretty crazy site, but this story is hot!) and get excited and scared all at once.

After you are done reading, and before you try and pull all of your accounts from everywhere in readiness for the financial market collapse, hey I said WAIT!!!

Still here? Ok.

Nothing at all is going to come of this story.

Now do not get me wrong, there is some real meat here and I personally have NO DOUBT Goldman Sachs has been front-running trades via complex networks and thereby "skimming" as much as 100 million a day from what is easily illegal activity.

And that is why there will be no story, no action against Goldman (at least in the open), and no market dislocation.

If this is true, it cannot be allowed to see daylight, and hence it will not. There is simply no way, no how.

Ok, now you can still get crazy, but keep it "contained".

Hyper Inflation in the Confusion Market
I am not one that sets his feet to an idea and refuses to move no matter what kind of information or argument is presented before him. I have been wrong so many times about so many things I have experience in changing my view, yes flip flopping, should I think I am wrong. There is nothing wrong with changing your mind as long as you have as solid line of reasoning behind it.

So here I was, thinking about the whole inflation/deflation debate that we have all been having. After careful consideration of the great Stoneleigh missive on deflation and the followup by Ilargi both of The Automatic Earth, I must say my inflation scenario was losing steam in my own mind. Add to this the daily data that Mish Shedlock provides and I was feeling like a deflation type of guy.

And then out of no where I became all confused again.

The culprit today was, strange1y enough, a Mish piece on deflation! As I was reading this article from today I was ticking off the deflation proofs presented and was again feeling the deflation groove. Mish covers all the usuals, but then this line hit me over the head:

Please keep in mind every country on the planet is following the same stupid Keynesian Handbook so on a relative basis the US is not as bad as appears at first glance. Don't expect a complete collapse of the dollar to happen anytime soon.

And thus came my confusion.

I hardly ever find myself at odds with Mr. Shedlock, but this line was a head scratcher for me.

Now we have entered into a period where as long as relative money magic is applied, all will be well? If this is so, then cannot every country simply print up some amount of money (relative to their monetary bases), use this new money to retire debt (debt deflation), and then all can go on as if this whole episode never happened? As long as each country stays withing relative limits, is there something wrong with it?

Say the US goes 5 trillion, China 2 trillion, Japan 1 trillion, and so on, could not enough money be "printed" to offset the debt deflationary cycle? As long as some parameters are kept fixed, then no currency should have issues as they are all doing the same thing, yes?

I admit I am confused by all this. A currency is measured, of course, against other currencies for the most part. It is also measured against goods and services. But if all money is funny money, will all money be just as good as it is today?

I am sure Mish has a well thought out process about that line, and to be fair it was two tiny sentences in a long article, but I have been stuck on it all day.

And thus I am still on the fence on the whole deflation/inflation thing. With the entire world printing money it is hard to imagine it will not come down to roost somewhere. While deflation says people will just save it, and banks will not lend it, and it will just be used as a set aside for losses the money is being put out there. Eventually it will replace the bad debt. Then it will enter the money system at some point.

I liked it better when I was not so confused!

Have a good night.