Why The Deflation Model Is Broken

visionvictory
June 16, 2009
Deflation is dependent on a stable currency. As the perception of a U.S. Recovery fades away in 2009 and 2010, nations around the world will lose faith in the dollar. Look at the actions of nations around the world, nations are diversifying out of U.S. assets. They are buying fewer treasuries at a time when the U.S. is dependent on borrowing 15 billion dollars every business day just to make ends meet. Russia, China, and others have also repeatedly encouraged the rest of the world to look past the dollar and to start thinking about a new world reserve currency.

Things are bad, but wait till you see interest rates go up. Currently we are being artificially propped up by historically low interest rates, but once they go up, chaos will follow for our economy. My point is, when interest rates go up, we will not see a slow/stable decline (deflation), it will be violent. As interest rates go up, the U.S. will go into something worse than a depression, taking deflation off the table. Once the world pulls the plug on the dollar, its over; the U.S. will experience a major currency crisis.
The current U.S. economy is unrecoverable; it will need to be restructured into a production economy not dependent on constant credit expansion.