Derivatives is a type of credit.
The definition of deflation is a contraction of money and credit relative to available goods.
Inflation is an increase in the volume of money and credit relative to available goods.
Robert Prechter view is, the credit bubble is too huge, i.e. 380% of GDP in 2008 i.e. about USD53.2 trillion (and that is exclusive of DERIVATIVES, which is another say, USD60 trillion), no amount of credit is sufficient to reflate it. Even the government budget deficit of USD4.5 trillion is like a drop of water on a hot frying pan, it will quickly sizzle off. Even the USD4.5 trillion raised is a form of credit by the government. So the likelihood of deflation is much higher than inflation, but he did say, hyperinflation will come later, towards the end of deflation.
According to Robert Prechter, forecasted in mid 08, the DJ will bottom at around 2014 to 2016 in terms of gold. DJIA has been on the down trend since 2000 in term of gold. It will reach around 5 oz of gold per DJ index point. Hence, it is either the drop in DJ or rise in Gold or drop in DJ is faster relative to drop in Gold.
What will they think of next?
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