This is a deflationary crash.
By Daniel at 26 November, 2009, 11:55 pm
Deflation occurs due to collapse in total demand. We have over supply of things that people do not absolutely need. Why would the demand collapse? It can, because total debt is too high.
Here is the debt problem in the USA and many other parts of the world:
tradingstocks.net/html/inflation_deflation_credit_bub.html
When we borrow, due to fractional reserve banking, banks create a promise to pay us. This promise - through the use of credit cards, checkbooks and other non-cash payment methods - works like money. Most of the money supply in the world is borrowed money. It was created when we borrowed. That is why it causes deflation. Because when borrowing stops, money supply shrinks. Here is how banks create money and cause inflation and deflation:
tradingstocks.net/html/banks_create_money.html
Most of the debt is denominated in US dollars. That is why when borrowing stops US dollar appreciates, like it did in 2008. Going forward, we should expect more US dollar rally episodes like 2008 where everything else crashes.
Linda Kay
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