Stock Market Crash!?

[JBinKC]

I’m going to go out on a limb and actually make a prediction. Over the next decade you’re going to see a slow selling off of the market. Perhaps we’ll even see something similar to Japan’s “lost decade” (or two decades really). We’re in a deflationary cycle. By deflation I mean less overall money, the loss of asset value, and a decrease in the rate at which money moves. I don’t mean price deflation, although we can have some of that.

I got out of the market in July 2008 (see my post then). I got back in April 2009. I’m out now (as of last week). When I mean out, I moved my entire retirement account out of the market and into a money market account.

Good to see someone on my page and in sync with the market. Given the reduction in M3 I agree it is hard to justify higher stock prices from here. It has been a good leading indicator for stock prices. However, I do see at some point the plunge protection adding more liquidity again on a market correction and another rally likely of less magnitude ensuing.

Longer term I still think the USA will be faced with the likelihood of default and eventually have to monetize the debt because in a deflationary environment receipts would fall and the ability to service the debt would be a major issue over time .

[cptacek]

what does "monetize the debt" mean?

[b4freedom]

what does "monetize the debt" mean?

Monetization - Wikipedia, the free encyclopedia

[b4freedom]

Longer term I still think the USA will be faced with the likelihood of default and eventually have to monetize the debt because in a deflationary environment receipts would fall and the ability to service the debt would be a major issue over time .

I think you'll see a lot of local and state governments default first. Countries will default as well, but I'm not so sure that the United States will be one of them. Fear and panic will force changes in DC resulting in tax increases on the rich (upwards of 70% - not a historical high). But, I don’t think that’ll happen this year. First we must get through round two of the housing crash (scary graph) and the commercial real estate crash.

[cptacek]

So "monetizing the debt" means "printing money"? Isn't that what already is happening?

[JBinKC]

They printed through July'09 and since then the money supply has been shrinking.

Going back to B4freedom's chart with the second wave of ARM mortgages coming due. The fed will also stop supporting the mortgage backed security market next month which to me implies another setup to a bear raid.