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| "Government policies to smooth out the business cycle were successful in preventing the frequent depressions that plagued the pre-WWII economy, but the downside was that the balance sheet imbalances and financial excesses built up during each expansion phase were never fully unwound."
"These trends led to growing illiquidity, and vulnerability in the financial markets. The greater the degree of illiquidity in the economy, the greater is the threat of deflation. Thus, the bigger that balance sheet excesses become, the more painful the corrective process would be."
http://fabiusmaximus.com/2016/01/18/debt-supercycle-update-93141/#m...
This, IMHO, is saying the same thing I've been saying. If you don't wash out the excesses with the corrective cycle lows, the (any) market gets unhealthy. It's just something that anyone who studies markets for an extended period of time knows. You must have the cycle lows to re-set the psychology. Now, it is like I have always said too - the bigger the party, the worse the hangover.
My guess (still) is that, since most of the currency is credit extended, the default is deflation. But again, that's my guess.
 (FRED chart.png)
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 FRED chart.png (52KB - 351 downloads)
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John, another look at where we have come to
