THE MESSAGE IS GETTING OUT – UNCLE SAM ISN’T GOING BROKE….

Is there is a dent in the deficit terrorist’s argument?  The message (and the truth) that uncle Sam won’t go broke appears to be becoming more and more mainstream.  A recent report from the Jerome Levy Forecasting Center shows that more and more mainstream economists are actually beginning to understand our monetary system and the realities that currently confront us.  Too bad they’re about two years late to the party….From the report”

“While some countries deserve to have their creditworthiness doubted, others, including the United States, do not. The United States is not another Greece, and the likelihood of default or any dire consequences from the present run-up of Treasury debt is minimal.

Nations vary sharply in their capacity to carry public debt. The United States, the United Kingdom, and Japan are all high-debt-capacity nations. All have had debt-to-GDP ratios over 100%, and in Britain’s case over 250%, without calamitous consequences.

Defaults on sovereign debt have never solely reflected high debt levels. The when and why of soaring debt matters; when a depression or great war is responsible, then high-debt-capacity nations can accumulate vastly more debt—and later safely bring the debt ratio back down—than widely believed today.

The U.S. Treasury debt is soaring because of a depression, and the budget deficits have been essential in keeping the depression contained, avoiding a disaster worse than the 1930s.  During a depression, an economy cannot absorb much if any deficit reduction. History shows deficit-slashing actions during depressions tend to be self-defeating because they
so damage the economy that revenue plunges.

A high public debt ratio in a high-debt-capacity country tends to shrink rapidly for years after the end of a major war or depression. The conditions presently causing high public debt growth in the United States and other advanced economies are not permanent and will eventually reverse, improving government fiscal situations dramatically.

High public debt does not necessarily imply inflation, especially when the debt is caused by a deflationary private economy. Historically, there has been no connection between inflation and the level of public debt in the United States, the United Kingdom, or Japan.

High public debt is unlikely to be a drag on future growth or prosperity. Future generations will not bear the burden of current deficit spending, as is widely believed. A collection of other items that some people count as public debt—including the social security trust funds and projected shortfalls for Medicare or other programs labeled “unfunded liabilities”—are in fact not public debt. Advanced funding for any such mandates and programs does nothing to ease the potential problems of meeting retiree needs in the future and could make matters significantly worse.”

Let’s hope this message continues to spread….You can read the full report here.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

Comments

  1. Is KD actually putting his money where his mouth is? This is the only question that matters. Is he shorting treasuries, US stocks and long US default swaps? He is screaming awfully loud, but if he’s not betting on these outcomes (which have all been really really wrong) then he’s worthless and should be ignored.

    • Come to think of it – Denninger is actually worse. He’s not even a gold bug which basically means he has been right about nothing in the last 18 months. Why does this guy have so many readers? Because he screams the loudest. It’s worse than Zero Hedge, but at last he pretends to be a gold bug.

  2. I would like to know what the author was smoking or drinking at the time this article was written.

  3. SS, Karl’s record as a trader speaks for itself. It is all a matter of record at http://www.Tickerforum.org

    Secondly, what in the world is the point of CDS on the U.S. Government? In that situation all paper promises become worthless, that is the whole point, why the .gov should not be screwing around with harebrained monetary schemes in an attempt to prevent the Deflation necessary to cleanse the system. The cost of failure is too high. And if you think in that situation you are going to walk the earth covered in your gold like some 21st century apocalyptic pirate, well then there is really nothing left to say to you.

    • In that situation all paper promises become worthless, that is the whole point, why the .gov should not be screwing around with harebrained monetary schemes in an attempt to prevent the Deflation necessary to cleanse the system. Super_z

      Speaking of cleansing the system, how about we cleanse it of the government backed banking cartel or is that too much cleaning for Karl?

    • Well the idea would be that a credit default swap on US debt would earn someone money if the US actually were to default – so being such an astute trader as you claim, one would have to assume his strong conviction and fortitude of opinion would lead him to put on a trade and make money from such. A CDS doesn’t have to be dollar denominated by any means – he could get a EUR, GBP, AUD, JPY, etc denominated swap and make a windfall if he’s right. But are you people over there really talking about Apocalypse?? The collapse of civilization?? I think you’ve watched 1 too many sci-fi movies. However, if that’s the case, I’d then expect KD to be amassing a massive store of weapons, ammunition, seeds, canned goods, drinking water and purifiers, fossil fuels, underground bunkers and perhaps farmland – given that he’s likely to have plenty of “worthless” FRNs from all his unbelievable trading….

      I was really starting to wonder exactly what argument was being made here but I think just the suggestion of apocalypse shows the low odds of having any sort of rational discussion. Then again, I guess you guys could also check out that wrinkly old piece of paper called the Fourteenth Amendment to the US Constitution, section 4:

      The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

  4. As for Greece, TPC, obviously it is apples and oranges where Greece has debt in Euros (the issuance of which it does not control) while the U.S. has debt in FRN’s (the issuance of which the Fed controls). But it is no different from the respect that the value of their outstanding debt is determined by the market’s perception of the likelihood of repayment. An ant an elephant are indeed different animals, but in the end they are both animals, and they can both die.

    I know in your mind there is no debt, that is a sophistry which is unproven to put it mildly.

    I’ll hang my hat here: http://www.treasurydirect.gov/NP/BPDLogin?application=np

    There is debt.

    • You can keep calling me wrong until you’re blue in the face, but as you have cited – the markets never lie and thus far any analysis that has said the USA is going bankrupt has been terribly wrong. No, not terribly wrong – it has been horrendously wrong. At least the inflationistas have gold to fall back on. Those screaming about high levels of govt debt and USA insolvency have just been horribly wrong….So you can keep calling me wrong, but until we start seeing even remote signs that the USA is going insolvent then the markets will continue to judge you as being wrong. At the end of the day that’s all that matters.

      • So can we keep borrowing 1.5 trillion+ per year. Year after year with NO consequences? How much longer will it be before the service on that debt is the largest item in the budget? What happens when interest rates go up (they won’t stay at 0 forever) and all that short term debt has to be rolled over at the new higher rate? You say we’re not insolvent 13.2 trillion national debt + 100 trillion in unfunded liabilities and the only thing keeping us from going belly up is China buying our T-bills. What happens when they stop buying them?

        I’m still fairly new to all of this economic stuff so, I have to look at things from a common sense point of view and to say that the government doesn’t get the money it spends from borrowing or taxing just doesn’t make much sense to me. Educate me.

  5. My warning is not about the failure of the amassment of government debt, it is about its continued success.

  6. Matrix, his /es trades are posted in the subscriber section of tickerforum, which I have been at times a subscriber. His nightly trading video in the subscription area also contains great analysis along with short and intermediate term predictions based on market action.

    I disagree with Karl on quite a few things, most notably gold (I believe as Mike Shedlock does that gold holds its value well in the extremes of both inflation and deflation, and it is good to hold in the current deflationary environment), and do not claim to speak for him. I do know having followed his blog and forum since 2008, and having protested the Fannie and Freddie bailouts with him on the streets of D.C. in 2008, that he is very, very sharp and more importantly intellectually honest (if at times a bit excitable). So excuse me if I am more inclined to side with him than your MMT paradigm. I will read the links at the risk of my own sanity

    • I was a subscriber until earlier this year so I’m aware of his investing acumen. He does not post every single trade he makes, so I take his performance with a grain of salt.

      I’ve been on his blog since earlier than that and while I used to side with him, I had to start asking the question everyone should be, which is why if the US is in such deep doo doo, how can it continue to borrow at such low interest rates? The empirical data/evidence does NOT back up his claims. He was calling for the market to raise the rates end of last year. That didn’t happen. It hasn’t happened this year. At some point, if you make a prediction you must have an actionable timeframe for it. He said so himself about the gold bugs.

      He is very sharp and intellectually honest. But his paradigm doesn’t explain the reality of how the monetary system works today. And his hatred for all things government makes it impossible for him to accept the MMT evidence even if it was staring at him in the face. He also like to act as though economics/finance follow laws of science(i.e printing leads to currency devaluation automatically, unbacked currency emission leads to private lending ceasing as though these are just automatic occurences).

      Give the posts I sent an honest review. It opened my eyes.

  7. Sigli, actually, I agree with F. Beard on several points. The banks did engage in predatory lending, committed fraud and theft, and it is still going on today. I also believe that “keeping up with the Joneses” doesn’t constitute a valid defense for taking out HELOCs or cash-out refinancing to put in tile showers, granite countertops, go on vacation, or buy a shiny SUV. But to reiterate, I believe this behavior, both the predatory lending and the conspicuous consumption, is a manifestation of the underlying driving force. I am a socionomist, I’m a believer in the truth of the Elliott Wave Principle, and I believe that the boom and bust is part of the natural cycle that occurs in nature and human nature. Recessions are natural and should be allowed to occur. They keep help to keep a healthy balance in the economy. To try to stop them from occuring only exacerbates the pain that is inevitable. Those proposing an easy fix by debt forgiveness or printing and distributing money fail to take into account human nature and the rise and fall of the collective social mood. Does anyone with a basic understanding of the global economy really think that we can just forgive trillions in debt, or give away trillions of dollars of free money without any global ramifications? As the saying goes, ten miles into the woods, ten miles out. There is no way to return to a healthy economy without first purging the bad debt from the system.

  8. TPC,

    Thank you for this website. I am a recent convert to MMT due to stumbling on to your writings. I’m currently reading L. Randall Wray’s book, Understanding Modern Money, and I can’t disprove anything I’ve read yet.

  9. TPC. Thanks for your analysis. It is very consistent with my layman’s perspective. Since K Denninger linked over here, I have read a number of your posts. I think that you and KD agree more than you disagree. I agree with you (as I believe, does KD) that the government does not have to borrow to fund its operations. He disagrees with you as to when the borrowing occurs, but I see that as a small point. KDs argument as I understand it is not a solvency argument, it is an interest rate argument that private lending will disappear when the government does not “sterilize” its expenditures by issuing new debt. My view is that the world is so desperate for the US to over consume, that it would tolerate a lot more “printing” than KD and other deficit hawks believe.

    I suspect that were you and he to sit down over a few drinks, that you would find much in common and might well enjoy the vibrant discussion.

    I look forward to becoming a regular reader of your blog.

    • “I agree with you (as I believe, does KD) that the government does not have to borrow to fund its operations. He disagrees with you as to when the borrowing occurs, but I see that as a small point”

      He doesn’t believe that at all. Go check his past Tickers, he’s still in the school that the gov’t funds itself thru borrowing which is then only backed via the power of taxation.

      When the borrowing occurs is a HUGE point and the highlights the difference between the two paradigms.

  10. I mostly agree with you, but think we’ve gotten ourselves in so deep that it will take debt forgiveness in one form or another in order to clear everything out and start on a strong foundation again. The other option is for government to pick up the slack, but I’m not a proponent of that. TPC’s main support seems to be “I’ve been right thus far”. So have plenty of other deflationistas that don’t believe MMT (myself included). The best response against this line of thinking is when does it quit working? When does the law of diminishing returns take the multiplier to zero or negative? It seems MMT is saying “just close your eyes and trust us, we know best”.

    Ooh, and then there are all those government accounting rules that contradict this notion that the government doesn’t deficit spend anything. But hey, who cares about those and the currency reserve status they give stability to.

    • And my “best argument” is not “I have been right and you have been wrong”. My best argument is laid out in detailed posts that I have written. But people still don’t trust it – the most oft repeated retort is “the market will serve you up on a cold dish”, but the reality is that the inflationistas and solvency fear mongerers have just been terribly wrong thus far…..Most of their points are contradicted by the free market that they always fall back on. Denninger and other writers can scream as loud as they want, but the market is sending a clear message to these writers – if you are putting your money where your mouth is you’ve become the poorer for it…..

  11. TPC. I think most would agree that yes the sovereign can print currency to avoid insolvency, but this is a statement of the obvious more than a solution to a problem. The question is can this accomplish anything useful? In the case of the US, the sovereign is a massive net importer, most crucially of oil, so how does trashing the currency via printing it without producing something of value to offset it benefit the sovereign? If you can give a reasonable and practically applicable answer to this question skeptics like myself would be more interested in exploring your position further. The way I see it people lend to get a return, e.g. OPEC gives oil for currency. This currency is accepted based on the recipient’s expectation of receiving a future fair value in return. Naked printing of currency destroys that trust and to my way of thinking damages if not ends commerce transacted in the printed currency. Thanks in advance.

    • The way I see it people lend to get a return, e.g. OPEC gives oil for currency. This currency is accepted based on the recipient’s expectation of receiving a future fair value in return. Naked printing of currency destroys that trust and to my way of thinking damages if not ends commerce transacted in the printed currency. Stupified

      Allow me to stick in my oar, if you don’t mind.

      What you say makes perfect moral and economic sense if the banks lent existing money. However, that is not what banks do. Instead they create credit money as they loan it in an exchange for a promise to repay it, often in exchange for collateral. By this means they create booms just as a counterfeiter might but with the important distinction that banks LOAN their “counterfeit” money (credit) rather than spend it into circulation as a classical counterfeiter would do. This inevitably leads to busts and unemployment. In fact, classical counterfeiters might actually cause less damage to an economy if they were moderate in their money creation since then only gentle (or no) price inflation without a boom-bust cycle might result.

      The banks are able to operate as they do because they are a government backed cartel. Thus it is not only just but poetic justice if the government bails out their victims. When 25% of mortgaged homes are underwater and the true unemployment rate is about ~20% it is safe to say the banks have created many victims who SHOULD be bailed out for reasons of justice as well as economic expediency.

      • I don’t mind anyone joining in as I’m not an economist but trying to make sense of the mess that’s been made. Your answer seems to avoid the heart of my question. If there is no value behind or debt to provide future value behind the currency what good is it? I mostly understand, I think, the factional reserve system we have which is where your response seems to go. What I don’t see is how the FED can simply print enough money without creating a bigger problem for the people who are making the decision to print.

  12. If there is no value behind or debt to provide future value behind the currency what good is it?

    Taxes are one thing that give US currency value. Control of Mid East oil is another thing. American agriculture is a biggie too.

    But what I’m suggesting is not to add to the supply of money plus credit which would might easily cause price inflation but to REPLACE credit money with genuine legal tender and forbid the banks to practice FRL unless they do it in their own private money supplies.

    • Yet again you avoid the heart of my question. As I understand it taxes are only practically useful if something of value is created by the citizenry, our current economic disposition in not favorable in this regard. Continued influence over oil is dependent upon a stable country with a functioning economy. Without a trusted currency how do you get value from agriculture and motivate the citizenry to produce it? These issues you raised score no points with me and only distract from my original question which remains unanswered.

      I understand the concept of replacing credit with currency in an attempt to maintain a stable money supply and avoid in/deflation. However two immediate problems come to my mind and I suspect that I’m missing others:
      1) How do you equitably distribute it without creating massive social upheaval and end any pretext of a free market?
      2) If the government sets the precedent of handing out “unearned” money, i.e. not backed by current or future promised production of real value, I would expect that you damage the currency in proportion to the amount you hand out. How does some one who actually produces something of value, e.g. oil, reliably transact business with such a currency or trust their savings to it? To put a finer point on this I understand that the value of fiat currencies are relative but dependency on this as a strategy is foolhardy and has limits. I am losing patience with you F.Beard as you have twice dodged providing any real answer to my question please concentrate on answering my original question with something useful.

      • 1) How do you equitably distribute it without creating massive social upheaval and end any pretext of a free market? Stupified

        That will take education of the populace of the inherent injustice of our current system. Then the bailout will not seem so radical. As to being equitable, I propose the equivalent of running the fractional reserve looting mechanism BACKWARDS. But in lieu of that an equal distribution of new legal tender to every US would be fair enough. As to the amount, it should be on the order of the amount that the average homeowner is underwater on his mortgage.

        2) If the government sets the precedent of handing out “unearned” money, i.e. not backed by current or future promised production of real value, I would expect that you damage the currency in proportion to the amount you hand out. How does some one who actually produces something of value, e.g. oil, reliably transact business with such a currency or trust their savings to it?Stupefied

        I advocate fundamental reform of money and banking as well as a one-time ONLY bailout of the victims of fractional reserve banking. That might damage the currency in the short run but so far the world has put up with US bailing out the villains, hasn’t it? So bailing out the victims would be a bridge too far?

        • oops! Formatting error in the above comment; paragraph 2) should be in italics. (“But for a nail, the battle was lost”)

        • F. Beard. Thank you for the more focused response. I disagree that what you propose is equitable, I see it is a handout to homeowners who made a poor choice. The only effective education/recognition will occur via their loss. This also perpetuates the moral hazzard problem by bailing people of of their bad decisions and reinforces the notion that when bubbles form the winning strategy is to participate, i.e. you get a house your production did not justify at the expense of those harmed by the naked printing. I support your call for fundamental reform but I don’t agree you’ve given the answer. We will have to agree to disagree. Your position seems to boil down to hey the homeowner is the victim so its justified to give them free money and with all the credit that’s disappearing we can probably get away with it. Everyone is a “victim” of the fractional reserve system as it currently operates who does not have a net long financial interest in the banking system. It is not clear where the “free money” limits are, what the feedback delay is to validate the decisions made and the process is not victimless. I don’t claim to have all the answers but so far the most cogent argument is from the crowd saying let it unwind and reform the system. I don’t like where what my sense of what’s right leads so I’m eager for a better solution but I have yet to find one. Thanks.

          • Your position seems to boil down to hey the homeowner is the victim so its justified to give them free money and with all the credit that’s disappearing we can probably get away with it. Everyone is a “victim” of the fractional reserve system as it currently operates who does not have a net long financial interest in the banking system. Stupefied

            Actually savers would get an equal distribution too and the banks would be bailed out in nominal terms as debts were paid down to market price levels. I see nothing equitable about running the fractional reserve looting mechanism backwards. However, if we can muddle through this depression without a reset that is fine with me but if it turns out we can’t then let’s not ridicule Helicopter Ben’s idea. I’d rather Ben drop FRN’s from a helicopter than risk WWIII.

            • Correction: I see nothing inequitable about running the fractional reserve looting mechanism backwards.

  13. TPC, here are some links that may help some on this thread. You may just be fighting an uphill battle here trying to explain how a pure paper/credit system like the Federal Reserve Central Banking ACTUALLY works. Good luck.

    Tuesday, May 4, 2010 MMT: Fear of Hyperinflation An article by Edward Harrison originally posted at Credit Writedowns http://www.nakedcapitalism.com/2010/05/mmt-fear-of-hyperinflation.html

    MMT: Economics 101 on government budget deficits
    Posted by Edward Harrison on 13 May 2010 at 11:35 am http://www.creditwritedowns.com/2010/05/mmt-economics-101-on-federal-budget-deficits.html#ixzz0uVA725lG http://www.creditwritedowns.com/2010/05/mmt-economics-101-on-federal-budget-deficits.html

    Deficits Do Matter, But Not the Way You Think Tuesday, 07/20/2010 – 10:57 am by L. Randall Wray http://www.newdeal20.org/2010/07/20/deficits-do-matter-but-not-the-way-you-think-15355/

    • You may just be fighting an uphill battle here trying to explain how a pure paper/credit system like the Federal Reserve Central Banking ACTUALLY works.

      A basic flaw with MMT is that it confuses the mechanics of M1 money production with the valuation of money and how markets decide what money is worth.

      For example, Randall Wray makes this point: “As budget deficits rise, this increases income (government spending exceeds tax revenue, thus adds net income to the nongovernment sector) and wealth (nongovernment savings accumulated in the form of government debt) of the nongovernment sector.”

      Yet if you look at a listing of nations and their public debt as a percentage of GDP, you can see that there is no positive correlation between government spending and economic output. Assuming that Wikipedia is right (and admittedly, I would look for a better source if I had time), the inflation king Zimbabwe ought to be ruling the economic roost: http://en.wikipedia.org/wiki/List_of_countries_by_public_debt Likewise, refer to per capita GDP figures, which again show no positive correlation between debt levels and output: http://www.nationmaster.com/graph/eco_gdp_ppp_percap-economy-gdp-ppp-per-capita

      I see Austrian “economics” for the joke that it is, and I certainly don’t buy into a pure view of the quantity theory of money as would some monetarists. I would absolutely agree with TPC that the US can create money at this stage without creating inflation, and that this is what we should be doing right now.

      However, that does not mean that MMT does a good job of explaining why it is possible to expand the money supply without creating inflation. The fact that the Fed uses debits and credits and open market operations to produce money is frankly irrelevant to how the market will value that money.

      A more cogent view of money is that it is a reflection of confidence in the management and growth prospects of the system, which ultimately means that the value of money comes from the underlying economic output of the country that produces it. That value is determined by the market, not by the government. The US can create money today without fear of inflation because (a) unemployment is too high to have inflation produced by wage competition and (b) the US should be able to create GDP growth by forcing that money through the system, and it is that subsequent growth that will give that money value in the future that prevents inflation.

      Zimbabwe can’t get away with printing money because its government and economy are basket cases that attract minimal interest from investors. We are anything but Zimbabwe, and certainly can pull it off. Being the largest economy in the world with the reserve currency has its advantages.

  14. TPC. I agree that govt spending is not inherently evil and useful to a point and I am no ideologue promoting an agenda. Where you lose me is the “hello more debit in the private sector” part. As I see it, the problem is not that there is not enough money to go around as much as there is not enough real production of value to support what was credited into existence.

    As I see it, when the realization point of this crisis occurred, governments were in bad shape to service more debt and private parties had made poor decisions, mainly taking or giving too much debt. The correct outcome to my way of thinking is loss and bankruptcy as necessary for the individuals involved and restructuring/resolution for the enterprises involved. Instead we made and continue to make the wrong choice of transferring these private sector losses to the public which does not deserve them. This decision chain leads us to the question at hand, the public’s ability to pay for it. I agree that the sovereign can simply print the money to pay off the debt but don’t see how they can do so without creating problems of similar if not greater magnitude.

  15. ” Instead we made and continue to make the wrong choice of transferring these private sector losses to the public which does not deserve them.”

    Jesus, get over yourself. You did not pay one extra dime to pay for any of the banks mess. If you lived your life in a prudent manner, saved, had a stash put away for a rainy day, you were just fine during this crisis. This is part of the problem, people insert emotion about “the taxpayer paying for the banks mess” when logically if you follow the actual money that’s not what happened at all. This is the propaganda that the deficit terrorists use all the time to whip up a frenzy which just removes logical thought from the process.

    “I agree that the sovereign can simply print the money to pay off the debt but don’t see how they can do so without creating problems of similar if not greater magnitude.”

    With the amount of slack in the economy that exists today, they could print a lot more than they currently are with no ramifications. This notion that printing automatically = currency debasement is not true. Always remember that currencies are valued against each other , not in a vacuum. Look at the dollar over the past 2 years. If printing money and rising debt automatically equaled a weaker dollar, wouldn’t that show up in the data? If rising debt automatically equaled the bond market demanding higher interest rates, where does that show up in the borrowing rates for Japan and the US?

    There is a limit to the government printing

    • This notion that printing automatically = currency debasement is not true. TheMatrix

      Yes. In fact, if real currency merely replaced the amount of credit money that is disappearing as fractional reserve loans are repaid then there need be no price inflation. The problems would come if banks were allowed to pyramid off the new high powered money. But that is what caused our problems in the first place, fractional reserve lending.

      If only we had liberty in money creation then these arguments about money could cease. We would have government money for government debts and private monies for private debt with floating exchange rates between them to keep everyone honest.

    • Please explain to me how I was not harmed by the bailout? I can see that my taxes were not raised because of it. However, I do not see how the issuance of new debt does not ultimately raise the tax burden and how naked printing does not harm my savings. I don’t believe that naked printing automatically leads to currency debasement. There are too many variables and not enough equations to provide a meaningful answer you questions. Therefore I rely on logical arguments as much or more than the data. The one thing that this mess has made clear to me is that the study of economics is anything but scientific and I’m open to be wrong but I think people see math and ascribe scientific accuracy when it is completely unwarranted. I require a logical explanation to your “no ramifications” statement which also happens to be at odds with your admission that there are limits.

  16. As for the cash, not too much risk there so long as it is deposited at a banking institution that is FDIC insured and in an account (ie. not in a safe deposit box and not under the mattress). However, in the case your bank goes belly up and you’re not able to withdraw the full amount ahead of time, expect at least 6 months or significantly more (based on the size of the bank) and lots of frustration before you are made whole by FDIC.

    As for the 401k, well that’s full of question marks. First and foremost, this is not FDIC insured and the 401k provider could potentially go belly up. Second, it depends very much on where your money is invested (stocks, bonds, REITS, funds, money market etc). In a deflationary scenario, you’d want to be in money market funds and sovereign debt funds. Lastly, you’ve gotta realize this money isn’t all that accessible until retirement unless you’re willing to pay early withdrawal penalties + income tax which may certainly be the case depending on your financial condition.

    Though you may not have debt, if you have any big ticket tangibles (home, car, etc) you do still have payments to make which will certainly be higher in a deflationary environment where you may have less purchasing power. Overall, in your current state, I’d probably not worry too much about the deflationary environment posing a risk as much as I’d be coming up with ideas of how to capitalize on the turn around when it inevitably comes.

    Oh, and just a side note – you really really really never want to be posting such explicit personal financial information on public forums. There’s no such thing as anonymous these days and you dont want to paint a target on yourself. Consider asking TPC to edit or delete your previous post when possible.