Stocks and bonds can go down sharply in the next several weeks as stagflation plays its final leg up before transforming into deflation driven depression
Paula Sachs
Jul. 18, 2008

The signs of economic depressions are clear. Sector specific and region specific depressions are happening right now. The inflation numbers are trickling into mainstream economy through the energy and food costs. The PPI and CPI are shooting up in the horizon like never before in recent years.

The stagflation was clear as people were borrowing from their home equities and credit cards to maintain their stands of living. The stimulus checks came and went mostly in paying credit card bills. The credit limits are reaching the limits and the next phase of economic disaster is about to start.

The chronic stagflation is normally propagates into deflation driven depression. This is especially true when stagflation is accompanied with debt based real asset inflation. That is what exactly happened in the economy in the last twenty-eight years. We never really got out of 1980-82 recession. Regan Administrations decided to balloon the budget deficit to create thrust in the economy. The Bush Sr. and the Clinton Administration suffered and enjoyed (respectively) the bust and boom of a topping long-term economic business cycle. The Bush Jr. faced in 2000-2001 the first depression but his easy money policies soon transformed the economy into stagflation.

For the last twenty years, we experienced underemployment and stagflation with serious in competencies in large corporations and all levels of the Government. Politicians proved they are worth little in a dynamic and challenging economy.

What comes now?

Stocks and bonds can go down sharply in the next several weeks as stagflation plays its final leg up before transforming into deflation driven depression. The bond yields are going up as the stock market goes south.

The biggest problem is not the oil price. It is the debt service load on the whole economy. The Bush administration did not understand the seriousness of the matter. Elected by the conservatives, this administration spent money without any control. The gold price reacted as shot up as dollar went down.

Now the deflation driven depression is inevitable as people just cannot pay their debt load any more. Right now stocks and bonds both will decline. Later stocks will continue its southward journey towards 3600 in Dow Jones Industrial Average while bond yields fall below 2% from the current 4.10% creating one of the best bull markets in long term Treasuries.

Stocks and bonds can go down sharply in the next several weeks as stagflation plays its final leg up before transforming into deflation driven depression
Paula Sachs
The signs of economic depressions are clear. Sector specific and region specific depressions are happening right now.
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