Saturday, December 20, 2008

A Conversation Between Two of My Horsemen

This conversation took place in February 2003 on Jim Puplava's radio show, Financial Sense Newshour:

Jim Puplava: What are the possibilities that somehow they really get this wrong and we have hyperinflation? Do you think it is deflation first, then hyperinflation after that? Is there a possibility that we head straight to hyperinflation? In other words, if we look at Germany in the 1920s, did they experience deflation first, then hyperinflation after that?

Bob Prechter: What the German government was doing was printing bank notes, actual cash. What the Fed typically tries to do is to get people to borrow. I don’t think there is any chance that it is going to get people to borrow enough to overwhelm the deflationary forces. Borrowing is the problem, and credit is what is about to deflate. If they started printing bank notes, I think it would panic the credit markets. So I think we will get a deflation first. I think we will have a hyperinflation after the deflation, but that is not a monetary or market analytical conclusion. It is based on what I think is likely in politics... Our last national crisis, unlike Germany’s, was not inflation but deflation. The people who are running the Federal Reserve System are definitely afraid of deflation, because that is what brought on our Great Depression. It is very likely that they will turn on the monetary spigots and try like crazy to reverse the deflationary forces."

Amazing!! That was five and a half years ago. This week, the Federal Reserve pitched that exact plan. Buckle your chinstraps!

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