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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Claude Cormier who wrote (30645)4/14/2005 10:05:04 PM
From: Taikun  Read Replies (1) of 110194
 
Claude,

I have been watching the GM/FNM/AIG/MBIA debacle with interest and concern. These four companies are extended to the tune of $7trl with SH equity of approx 150bn. The net position, a shortfall if $6.85trl, is about the size of the US GDP for one year.

But this is just four companies.

Add in the homebuilders, the rest of the insurance sector and subprime sector and a slew of other overextended marginally profitable American companies and it points to major liquidity issues for the economy.

So, I have to ask you, if liquidity leaves the system, and there is an ensuing shortage of cash, where is the cash to buy gold? (Excess liquidity has been driving gold demand, not a liquidity shortage).

IOW, investors will be selling gold to meet cash calls and other commitments requiring cash (ie not gold).

I don't think the Treasury will monetize the debt of private companies into the trillions. They will have to let them fail, because I do not believe for a second this gov't would ever put *their* ability to fundraise in the bond market at risk. The bond market will not allow them to print the money to bail out these companies.

If you remove the following gold bug assumption:

"The Fed will bail out the securities and debt of FNM and other high-risk borrowers and derivatives lenders like JPM by buying their debt"

How can this be gold-positive?

D
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