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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (23998)1/4/2005 11:34:35 AM
From: Gemlaoshi  Read Replies (1) of 110194
 
ild, Great article from Kasriel.

I thought his mention of the Arthur Burns Fed was interesting. Those of you who were around economics in the early 1970s may remember the argument: "the Germans and Japanese will continue to buy our T-Bonds and never break the Bretton Woods fixed exchange rates because they owe us their very security."

Of course as we continued our profligate spending on Vietnam and Great Society programs, the pain eventually became too great, and first Germany, then Japan floated their exchange rates and the game was over. It took ten more years, Paul Volker, and much pain to finally recover from such nonsense.

I get a sense of dejavu whenever I hear the argument that the Japanese and Chinese CBs must continue to buy our treasury securities because they have no other choice than to support their export industries. It is a fool's game that at some point must end in painful readjustments.

The only remaining questions are who pulls the plug, and when.

Dave
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