So why do I continue to insist nonetheless that we are headed into a catastrophic deflation? The short answer is that even tens of trillions of stimulus dollars is just a drop in the bucket compared to a deflationary juggernaut poised to suck inflation into a black hole. When the bubble finally pops, here's a list of things that will deflate almost to nothing before the central bank has a chance to even attempt a resuscitation:
- A hyperleveraged derivatives market valued at $2 quadrillion
- The public-pension systems of two-dozen states
- Residential and commercial real estate worth around $55 trillion
- $3.8 trillion in money markets that lubricate the financial system
Can you see the problem? Not that anyone doubts the Fed's determination to keep the system liquid at all costs. It's just that the central bank's statutory and logistical ability to do so will be outmatched by the precipitous shrinkage that some black swan is destined to cause.