Reflation Contemplation

Importantly, we’re now in the midst of the first “Wall Street finance Post-Crash” Reflation attempt. It is analytically imperative to recognize that - because of the newfound impotence of “structured finance” – the current Reflation will be Different in Kind from those that preceded it. Wall Street-backed finance was predominately in the business of lending, securitizing, leveraging and “hedging” in asset markets (especially real estate, stocks and debt securities)... Now, however, the bust in the securitization markets will for some time exert a major drag on U.S. asset inflation, while unleashing greater liquidity to play havoc with a vast multitude of prices at home and abroad. Furthermore, previous Reflations - where U.S. asset prices demonstrated the prominent Inflationary Bias - worked to promote underlying demand for dollars (to purchase U.S. assets), despite the fact that dollar-denominated Credit was being inflated in excess. Today, in stark contrast, prevailing Inflationary Biases are global in nature, exacerbating dollar selling pressure within a backdrop of ever-increasing dollar oversupply.