Re: QE II — ALL A-B-O-A-R-D !!
Those with the money are not all bankers and even those that are bankers still have private liquid assets far beyond what your wicker basket will hold – more on the order of a wicker open pit mine hole. A lot of stuff gets discarded (vinyl blight subdivisions, excess commercial/retail space, etc.) but in the process the remaining productive assets also get repriced (baby / bath water) so the opportunity for accumulating large quantities of productive assets at bargain basement prices arises. The same applies to art, guns, rare whatevers that get coughed up by those who thought they were rich, but must raise cash.
Yes a lot of incomes decline or disappear and debt repayment becomes improbable which will no doubt sink a whole bunch of loan portfolios (see local regional banks – see them vaporize). But then again what this really is, is credit. Money is credit, credit is money – or is it? I firmly believe that away from gold the only real money in the US are those 900 billion FRNs – roughly half of which circulate overseas. Everything else is “leveraged” off that base – if the leverage disappears, I say we lose nothing but the fantasy that we were “rich” beyond any people that have ever existed in the known universe.
Every contract in the US has in its repayment terms the word “dollar”. it doesn’t say you owe me a check or a credit card payment. Naturally by convention we accept checks and plastic as payment, but it is within the rights of the contract holder to demand payment in cold hard FRNs. Not hardly enough of those around to cover the contracts, eh?
Deflation is not the only case where regime change occurs ( see Weimar Germany, innumerable African and South American countries). So far in this country deflation has never brought a total change in govt. FDR was a s close as we get and in reality even though he campaigned against Hoover’s wild spending – once in office he took the ball and ran with it – sort of like Obama has done with the pre-existing Bush policies.