BC:
Excellent comments.
No disagreement from this end that the Fed sees deflation as the troll out there and that it is prepared to do as Bernanke stated,.... turn the presses on and leave them on,.... or "buy" (using newly minted bucks, i.e., monetize) whatever, to hold deflation in check. I agree that the Fed has to be concluding that a weak dollar is an inevitability. Triage is never a fun occupation.
But unfortunately, there is a joker in the deck who has to be given more than passing consideration,.... the foreign investor. Not that I believe for a moment that any consideration he might be given would have anything to do with morality, but more based on the fact that since he finances a huge chunk of the current bond market, the current stock market, the current trade account deficit etc., but more to do with the fact that anything that might cause him to head back home, taking his dough with him, would do unimaginable damage to an already fragile U.S. economy. And a falling dollar/rising price of gold whacks the foreign investor doubly, perhaps even so much as to ensure his departure.
The other problem is what to do about the huge gold short position created by the gold leasing scamarama, because if gold prices stay up here, then a few high profile bullion dealers go to the wall and in so doing, the story behind that crazy game gets out into the open. Personally, I don't think the Fed has yet determined how it can "monetize" all that missing gold in a low profile way, and until it does, this is likely to be viewed as the worst of a gathering storm of near term problems. If I am accurate in this perception, then the gloves come off and a huge effort to smash gold down ensues. On the other hand, if this does not occur, then we keep an eye out for:
- heavy foreign repatriation and corresponding disruptions in the bond and stock markets.
- a rocket ride for gold prices,.... foreign investors who lose confidence in U.S. denominated assets are sure not going to return their (remaining) dough to the worrisome currencies that caused their move "offshore" in the first place.
- a swift, brutal return to a recession-ridden economy.
- some very novel new ways to sell debt as the deficits simply have to be financed or else,..........
BC, you put your finger right on the main bubble beneath all the others,.... debt. And in the end, this one too will be pricked, as it has been through all of history. Among the many things we have to assess as this inevitability comes to pass, is whether the U.S. buck gets smashed in the process, (and of course, a rising price of gold is a well understood indicator of this for a large cross section of folk). Personally, I think the Fed is cornered and in panic mode. This can lead to mad decisions that have unintended consequences for all of us. We sure as heck live in interesting times.
Appreciate your contribution on this one.
best, Earlie
But for investors this raises some ugly spectres that Problem is,.... what to do about the equally inevitable follow-on to a weakening dollar,... that being an exodus of the foreign investor. If/when he exits, he pulls the support legs out from beneath the bond and stock markets in leaving. |
