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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (22844)	12/5/2004 12:26:17 PM
From: Carlos Blanco	Read Replies (1) of 110194

() 7 small steps to crisis* the modification that i would make to his single straight line is that it's more likely to be an ongoing series of repeating loops around 3-7, some big, others small, culminating in at least one truly huge crisis/panic with political implications & shakeouts. this is a subjective judgement based on how i've seen currency crises evolve in the past. i'm assuming that human nature and history tend to repeat, which i think is a very safe assumption. bottom line: it'll be very important to not get faked out by mistaking the end of a loop iteration for the end of the major trend. in other words, there will be ongoing waves of official "false fixes" & intervention, each having less and less effect and reducing government credibility, over the course a declining trend in the value of the dollar. the trend could conceivably take many many years (decades?) to play out, although with the instantaneous spread of information and twitchy fingers that exist nowadays it's also possible everything could unfold in 12 months. the very first time that mr. snow said that the US had a "strong dollar policy", it had an effect on the forex markets. each subsequent utterance of that phrase has been less and less effective to the point where today it's viewed as pathetic. before this all ends, i expect a similar discrediting of the entire political establishment (and the fed in particular) as they try to "fix" the dollar problems via misdiagnoses, populist/easy answers, manipulated statistics, and blame-shifting. not too differnent from the US in the 30s and 70s. to the extent that one of the crisis loops becomes explosive politically and no longer addressable by empty talk and fake solutions, there will finally be some kind of "real" action that will halt the dollar decline and give people hope that fundamental things are in fact going to change going forward. possibilities include: letting interest rates rise to their natural level; withdrawal from the middle east and/or reversal of the world policeman policy; money supply taregetting; the president and congress saying that this time they really really really mean it when they say they will reduce the budget deficit; partial gold backing or explicit gold price targetting; fixing/privatizing/abandoning social security; radically simplifying the tax code; dismantling the federal reserve; and so on. any combination of these would in my opinion be dollar-constructive and a potential longer-term turning point.

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