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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Rarebird who wrote (3902)12/26/2003 11:13:23 AM
From: philv  Read Replies (1) of 110194
 
"And the foreign Central Banks, especially the Asian Central Banks, keep creating vast amounts of new domestic currency in order to buy Dollars in order to recycle the Dollars back into new Treasury (and Agency) debt in order to keep the wheel turning over."

That's the big picture alright, and that is the one factor enabling the FED to keep interest rates at ridiculously low levels. How long will this dance last, and when it ends, because end it must, what will the landscape look like?

There is a huge transfer of wealth occurring right now, streaming out of the US. Asians and others holding US paper expect these to be real assets, redeemable at some point. As the US keeps issuing these IOUs, eagerly snapped up by foreigners, the US is gradually losing the ability to call the shots, and becomes more and more dependant upon foreigners for its economic survival. Not a pretty picture.

The plan:

I believe the FEDs answer is continued massive inflation or printing of dollars. The penalty for inflation is muted by the shear amount of dollars throughout the world. As the dollar becomes worth less and less, the US has an opportunity to rev up its economy and hopefully repatriate some of the debt.

Question is will the world economies co-operate for the long haul. If not, default is the only option, and a New World Order will surely emerge from the economic ruins.
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