Hi Russ.
This is my follow-up to your earlier post about who the ultimate “Big Bag Holder(s)” will be in the present global economic context. If you see things differently, please say so.
While the Crack-up Boom Continues …
Big Bag holders include:
1 – Whoever owns US$ or US$-denominated assets
2 – Whoever doesn’t have a position in hard assets
I thought you stated it well Russ in a previous post when you said:
to me the USD is the key to my Crack Up Boom/Train Wreck hypothesis, as it's the international "money" (dominates CBs reserve holdings), and that's how most input goods and commodities (like oil) are priced globally. I think the peggers are starting (see Thailand, Brazil today, Russia earlier) to run toward life boats to avoid sinking with the Titanic.
Message 20665866
Big winners for the time are the borrowers of debt (or the indebted) – that is, significantly the U.S. who is able to buy real goods and services with the clownbuck.
Though certainly some Asian countries (chiefly China and Japan) appear to have some quid-pro-quo happening here. For whatever reason, and it’s probably significantly keeping domestic currencies down and securing continued preferential access to the U.S. domestic market, adding to existing clownbuck holdings (for the time being) appears to be a “good trade”.
BTW, until the crack-up boom goes bust, to my mind US$ old maid cards (as you put it) just get shuffled around in what ever manner necessary to keep the game going – that is to sustain global aggregate demand to keep the US consumer consuming. Global commodity price inflation is simply the price that is paid for this policy (for as long as it lasts). My personal feeling is that there is almost certainly a globally-coordinated policy (which doesn’t mean unanimity by any means) where the end-game is pretty much understand by all (i.e. all major global economic players).
BTW, how long the “crack-up boom” continues I don’t have a clue. To my mind, it could really go either way for some time.
When the Crack-up Boom Busts …
But, eventually it has to stop. Doesn’t it? I mean, eventually, interest rates have to normalize to encourage domestic savings in the U.S, and encourage more efficient allocation of scarce natural resources.
While certain financial comparisons to Weimar Republic Germany are fair IMO, in the 1920’s, Germany had reparations she could never hope to repay, and a destroyed industrial base. For Germany’s industrial cartels, destroying the monetary environment presented a logic that does not exist in the U.S. to the same degree at present IMO (though again, there are parallels).
IF the crack-up boom eventually busts, who will then be the bagholders? To my mind, it is a very different and broader category of folk. Actually, in this situation, I don’t think the bagholders will be primarily the Japanese, OR the Chinese, OR the Americans, but rather I believe we ALL could be left holding the bag.
Some thoughts are:
- Every society will be left with serious troubled banking systems.
- Look for gains of private wealth to be tucked away, while extraordinary losses in public financial institutions are socialized (i.e. ultimately borne by taxpayers).
- Almost every nation will face higher real borrowing costs and have boat loads of debt (particularly the U.S. and Japan) to pay off/service (with inflated currency) or default on.
- China, in particular, will be left with serious manufacturing overcapacity, which I believe will prove highly deflationary.
- Americans in particular will face a substantially lower standard of living.
- North Americans and Europeans will have uncompetitive cost structures, and face deflationary pressures from the developing world (and China specifically) for at least a decade while developing world domestic demand catches up.
- We will all be left holding the bag of a planet whose operating at the very brink of its carrying capacity, with peak oil threatening, and the increasing demand on the planet's scarce resources.
The constituencies that will suffer least IMO are more sophisticated investors who are able to be liquid at the onset of the bust, and powerful financial and industrial cartels who are able to use the Government to further their interests during the bust.
Them’s my 2 cents on the matter FWIW.
Regards,
Glenn |
