post from GoofyInMD on the FOOL on the Falling US$
This didn't start last week. Why did all these countries continue to go along for the ride. Moreover, if they cut the US off now where will they market the products they make for American market? This is way more complicated then just turning off the tap to the US.
My rant reply
It is indeed tons more complicated.
A falling US$ with a China peg forces Europe to bear the brunt of it. Of course they could spend as recklessly as we do but as long as they do not, they will suffer. Japan is suffering as well, a higher YEN is hurting their exports and Japan is about ready to sink back into deflation.
The US is forcing the EU to inflate or die, and so far they are selecting deflation.
As for the US, the party continues and everyone seems to think this is a free lunch. People act as if we can forever keep on sucking up 80% of the world's savings and use them for personal consumption. Well there is no free lunch but the loose and easy money has spawned multiple bubbles in junk bonds, the stock market, and housing. The latter is the only thing keeping the economy growing.
Right now it is party on dudes but the next recession will be far far worse than the collapse of the Naz that hit us in 2000. A giant ponzi scheme of ever expanding credit is what it takes to keep this bubble growing. Housing is showing signs of stalling so what does Bush do... Wants more free loans and free down payments for deadbeats that can not pay their apt bills on time and will have no clues about the problems facing homeowners. But it is inflate or die here too, and a home or two in every pot.
The end game is easy to see for those that can think ahead: As soon as demand in China is strong enough for China to depeg its link to the US$ prices are going to rocket up in short order. Right now we are begging them to depeg. Right now it is not in there best interest. As soon as they have sucked out 99.5% of all the potential jobs they can take from us and as soon as all the techonology transfers from the US to China are made and as soon internal demand in China picks up it is going to be lights out for the US. Rest assured when China does depeg it will be in THEIR best interest not ours. The time is coming.
Fortunately, for the short sighted US thinkers, that just might be a ways off. 3 years perhaps. In the meantime we peacefully outsource our jobs, give them our technology, and they are clever enough (for now) to keep lending us money at below cost rates.
The stock market cheered today more US spending. The US savings rate fell to .2%. I guess housing will keep on rising forever, and people can keep doing cash out refis to support current consumption. Let's see borrow $1M, plunk it down on a house with 0% down. A 20% a year rise and one can take out 200,000$ a year to live off (and make the current interest only mortgage payment to boot).
Looks like a free lunch to me.
Party on.
This can all continue forever, and Jedi is the tooth fairy and I am the Easter Bunny.
Mish |
