The US has to default...well, we all know that the "geniuses" running US monetary and fiscal policy have limited mental capacity. If I recall correctly, Helicopter Ben once said that he did not know how to take an economy out of deflation, so, they would do whatever they could to keep deflation at bay. The time has come for DEFLATION...but, our "geniuses of policy" have figured out a way to stave off deflation...a nice US gov't default ought to do the trick! That should drive enough inflation into the system to rid the system of deflation! Here is my "evidence." (For those who do not know - M1 growing quicker than M2 is considered a "liquidity trap" - more people would rather have their money in cash than even in short term time deposits (CDs, money markets, etc.) with banks. Read 'em and weep...here is a link to the money aggregate numbers...even with the FedRes fudging numbers and "seasonal adjustments" - M1 has been growing quicker than M2 for over six months... http://www.federalreserve.gov/releases/h6/ Choose a date of your liking...check out even the FedRes's numbers..DEFAULT HERE WE COME!!! I think a "downgrade" would increase inflation...but, I do not think it would increase inflation enough to fend against deflation. The die has been cast...default! -gastropod
Erm, let's not panic just yet, please... Money mkt funds, as well as other mutual funds, have been experiencing outflows for quite some time now. If I had to guess, that's probably what's behind the whole M1 - M2 growth differential. It's also, in my view, a healthy process that makes the financial system more stable.
I think it is more of an insolvency problem than a liquidity problem. That cannot be resolved with a movement in any of M indicators.
US MUST MUST MUST come under the control of the US ARMY or the bastard politicians will rot it away in 5 to 10 years max.