Tuesday, September 14, 2010
If I knew with any certainty the rate of the decline of Oil imports into the U.S., I would have a better time line on deflation.
But here's the deal:
Irrespective of the Fed's monetization, that increase in debt will be more than offset, and for more than several years, by the decrease in aggregate debt (and hence credit) in the rest of (non-government) the economy. After noodling Mish's point that only Congress can cause hyperinflation by giving money away (or causing capital flight) I tend to agree with him (but just for giggles I did skim through the Federal Reserve Act - again). The Fed is just about powerless to cause hyper-inflation (or any kind of inflation for quite some time.)
Now, with that said... we need to then propose scenarios - "what if's". Let us assume that Iraq does not have a Saudi Arabia export potential (although it might, but for our purposes here let us forget Iraq), and the world's export profile comports with Jeffrey Brown's detailed pdf.file...
The price of Oil would have to rise significantly for the U.S. to maintain a trade deficit (and hence, have a foreign market for its bonds)... i.e. the price of Oil would roughly have to double should imports be cut in half... then, a calculation would have to be made for impacts to the U.S. economy in general for the decline in supply...
I need to noodle this some more... if anybody has anything to add I am all ears....
Posted by The Short Story Man at 9:48 AM