SOS Back to Mythonomics

Mythonomics

Is majority believe something, but the truth is opposite
Because of the majority believes, the financial market reacts based on this majority believe
The fact is this believe is actually the opposite of truth
This will continue for a long time, as long as majority and the mass media sells it,
Majority will believe it, because, they do not get sufficient information on the truth
That is how the world works,
The truth is irrelevant, the key is the perception is more important than the truth

So, now the REALONOMICS

The truth sometime is harder to understand, because, the fixed notions are formed in the majority mind.
Myth No. 1 - printing of money post 2008 crisis will cause hyperinflation.

During the 2008 crisis, the Fed has pump about USD1.7 trillion into the banking system.  USD1.5trillion is still in the reserve of the bank, kept as reserve.

The velocity of money, M2, actually slows down since 2000, even with the injection of money.

There is no growth in new credits, as banks are afraid to give out loans.

Because of the wrong expectation that the printing of money will cause hyperinflation, many has bought gold and silver, in anticipating of spiral inflation.  So the price of these precious metals rises to new high until May 11, 2012.  The real fact and truth is, there is no hyperinflation as they thought it would be.

Why?  Because the deflation is at work.  The age of deleveraging as mentioned by Gary Shilling will eventually come to past, the debt that turn bad far exceed the new money that is printed, afterall, 88% is still in the banking system instead of reaching to the small and medium industries, which explain why the unemployment remain at 8%.

Yes, a lot of people expect USD currency become toilet paper, but against who? The Euro is much worst.  EU has about 10% unemployment.  PIIGS is causing lots of problems.

So what will happen next,

In the long run 5-10 yrs, various type of assets will deflate at different times, be it properties, equities, precious metals, iron ore, copper, nickle, and other consumable commodities, not because they are no demand for it, because of the debt implosion.  The fear that set the commodities prices sore higher because of fear of hyperinflation did not turn out.  So, when the truth are reveal, DEFLATION will prevail, and people will be then fear that the various assets price will drop (because it was inflated by fear of hyperinflation in the first place), prices will drop gradually for different type of assets.

There is no clear solution to this, USD will strengthen in the long run because the BAD DEBTS will wipe out many trillions from the world (after all most debt are denominated in USD).  So, will there be short of USD or too much of it, give it a deep thought.

If you are on the wrong side of the coin, you may loss some money, if you are at the right side, you may gain some money.  Whichever it is, don't take it seriously.  Just money.