DR DOOM short take

By Robert Prechter, Steve Hochberg and Pete Kendall
August 25, 2005

The Credit Supply Is About To Begin a Major Deflation

The June 28 issue of "Bullion Buzz" quotes investment guru Jim Rogers as saying, "Anyone who thinks there will be deflation does not understand twenty-first century banking. There may well be a deflationary collapse later, but before that happens the government will print money until the world runs out of trees." Of course, Jim is a legendary market analyst, but it is rare to hear him take a stand against the minority view. In this case, his words can pertain to only about half a dozen people in the United States, with the other 299,999,994 of them siding with Jim. They are, moreover, putting their money where their mouths are, buying stocks, commodities, gold and property and borrowing money at an unprecedented rate on the conviction that it will consistently lose value. Usually the crowd is wrong, and this is a big crowd.
At this point, dollar-denominated debt has reached $37.3 trillion. The economy has little basis on which this ocean of debt will be repaid. With investment markets poised to fall across the board, the United States, and probably most of the world, is on the cusp of a great deflation. The credit supply will contract, and despite ubiquitous professional and popular belief to the contrary, there is nothing that the Fed can do about it. (See Chapters 11 and 13 in Conquer the Crash.) By the time the central bank gets around to printing money as opposed to offering credit, the devastation will have run its course.
The Economy Is About To Resume Its Trend Toward Depression
The economy started a depression in 2001, and it’s not over. The recovery of 2002-2005 is akin to those in the Japanese economy since it topped out in 1989. It is not a new trend of expansion but simply a respite. When the Dow breaks 8000 and silver falls below $6.00, we should begin to see hard numbers indicating renewed economic contraction.
Safe Havens Remain the Only Sensible Choice
Cash will buy a whole lot more a few years from now than it does today. You can already buy a share of the S&P 500 for 20 percent less than in 2000 and a share of the NASDAQ for 60 percent less. You can buy a car for 20 percent less than a few years ago. When oil and real estate turn down, we will begin to see lower prices on virtually all goods and services.
This article is an excerpt from The Elliott Wave Theorist and/or The Elliott Wave Financial Forecast monthly newsletters. Get the very latest analysis from Robert Prechter’s Elliott Wave International. www.elliottwave.com/a.asp?url=http://www.elliottwave.com&cn=ir
To get Robert Prechter’s complete forecast for a deflationary depression, plus practical advice on how to survive and prosper during this period, read Conquer the Crash. The first edition achieved #1 status on the New York Times and Wall Street Journal bestseller lists. The expanded and updated edition for 2004 is now available. Order your copy now. www.elliottwave.com/a.asp?url=conquer&cn=ir