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Deflation could do it. Although the revision of the numbers from one (August) employment report ruled out any possibility of a recession, much less a deflationary recession, right? Right?

How about debt deflation? It’s coming, only question is whether the Fed has the power to stop it. In some circumstances, they don’t, just as Japan hasn’t for… what, 20 or so years. A deflationary contraction could conceivably outrun the Fed’s inflationary power, if it were severe enough.

Or maybe not. Hell, I grew up hunting rabbits and driving tractors, for Chrissakes. I’m still pissed that Case bought IH.

Here’s the chart:

(click for larger image)

That’s a very Wolfe Wave -looking pattern to me. An ascending wedge for over 18 months, now a spike out of the wedge, a near-term bottom which touched the top trendline, and a retrace.

A break below $1.40/Euro would look like the start of a thrust, no? Could we see the low 1.30s in short order?

Let me put it this way: Think of every single thing you’ve heard or read about the dollar, gold, oil, etc recently. What percentage of people and articles are forecasting

• A stronger dollar?

• Falling gold prices?

• Falling oil prices?

• Falling stock prices?

Ten percent? Five percent? One percent? How many guests on CNBC are saying, “Oh yeah, Maria, $60 oil and $500 gold on the horizon”? Limit as x goes to zero?

Now, with virtually everyone on earth on the same side of the boat, what does your trading experience tell you would bring Mr. Market the greatest gleeful pleasure, evil sadist that he is?

Think about it.

Alan Greenspan made an appearance on The Daily Show to plug his new book, but instead of the shallow, softball exchange he may have been expecting, Jon Stewart knocked him back on his heels with one of the most insightful interviews I’ve ever heard.

They covered the myth of the Free Market, the Gold Standard, the Fed’s role in controlling the quantity of fiat money, inflation, irrational exuberance… all in the span of about 5 minutes and all in a comedic context.

The coup de gras is when Greenspan admits that even with all the complex mathematical models, neither he nor anyone else is any better at forecasting now than they were 50 years ago!

Pure Brilliance. This interview should be mandatory viewing for any student of FOMC operations and monetary history, and I think libertarians and many Ron Paul supporters will particularly enjoy it.

You can (and should) view the entire video at the Comedy Central Daily Show website. Here’s a sample of some of the exchanges:

Heads-up to a developing situation:

Credit is crunching again, and banks are having liquidity problems- the Fed did $31.25 billion in Repurchase Agreements today. That sounded like a lot, so I went to the Federal Reserve Bank of New York website and copied the daily figures into Excel from August 1 thru today. Here’s what a quick chart of those figures shows:

Clearly something is up. Another point of interest- of the $31 billion in repos today, the Fed accepted $4.1 billion in the infamous mortgage-backed securities. Contrast that to August 10th, when they accepted that moldy paper for all $38 billion worth of repos.

So, the banks are in a temporary liquidity crisis, but it’s not because the MBS market is locked up and no one will buy the moldy paper. That doesn’t sound good…

Now for the next bit of chartage. The market is suddenly expecting a large amount of permanent money to be added to the system. This is reflected in the spike in the price of gold and the drop of the dollar against the euro. Here’s gold:

Credit Crisis anew. Permanent money. Sounds like only one answer to me: a cut in the Funds Rate. I had already publicly said that I felt the Fed would try to wait until the 9/18 meeting to cut, so as not to spook anyone. Today’s data leads me to believe they may not be able to wait that long.

Cheers.

Ever have so many projects in the air that you can’t seem to get any one of them out the door? That’s where I am right now.

I have multiple articles in progress right now with lots of words like Federal Reserve, deflation and *&%!! in them. I want to get them finished and published before the Fed lowers (25 basis points on September 18, quite possibly before, my name is Will and I approve this message).

Then I still have that Major Backtesting Project I undertook through the Spring and much of the Summer which changed the way I trade, and so far at least, it’s looking goood. I’ve got to get that article out.

And this past week, I’ve invented my own currency. No, really. It’s an idea I came up with in the late 90s and never implemented due to the divorce, the work, distractions, obligations, nymphomaniacs… just not enough time in a day.

The market, yeah. Motorcycles, yeah. Trading, good wine, cold beer, all passions. But the one that eclipses everything is my passion for parenting. I can objectively tell you that my daughters are the best, most wonderful kids in the world, and if you don’t believe me, just ask me.

Well, you parents know that you don’t want to deny them the things they want, but they’ve gotta do their part (the connection between freedom and responsibility, choices and consequences is my life’s mantra, particularly in regards to parenting). And when they refuse to do their part, you can’t just crack their heads open, no matter how much you feel like it at the moment.

So, I pay them. But not with small denominations of U.S. Treasury notes. Nope, not with Uncle Sam’s money. I pay them with my money. You see, that way, I completely control the money supply, the exchange rates, and most importantly, the rate of inflation.

They mow the yard? I pay them a predetermined amount of Funny Money [(I’m very generous with the pay scale) -Ed.]. Do the laundry… more Funny Money. Ditto for everything I want to encourage them to do, from chores and good grades to homework and going to bed on time.

What if they want to go to the mall? They pay me.[(with Funny Money) -Ed.] Talk on the phone for an hour? Pay me. Go to a sleepover party? Pay Daddyo. Spend the night at the boyfriend’s house? Not in this lifetime, young lady!

If they refuse to take on enough responsibility to earn sufficient Funny Money, they in effect ground themselves because they can’t afford to do the things they want to do when the time comes.

They can exchange their Funny Money for real money, also. As above, at a predetermined rate [(right now I allow them to trade $2fm for $1 U.S. at any time, guaranteed) -Ed.]. Of course, if I were like an unscrupulous Federal Reserve, I could gradually make the Funny Money worth less and less Real Money, and “inflate away” the value of their efforts. But I don’t.

Anyway, we had a great time this weekend, and I got to try out my latest mondo lens (77mm front element, yum) taking pictures of them playing in the rain this afternoon. (Don’t tell the teenage friends, that might not seem cool). As I was transferring the pics onto the computer, we looked back through some earlier shots and I saw this one I took of the middle daughter a few months back (she’s 13, don’t get any ideas):

Her comment? “Argh, I look fat!”

…. teenagers!