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

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To: Umunhum who wrote (36407)	7/20/2005 11:55:31 PM
From: mishedlo	Read Replies (2) of 110194

Let's look ahead with your scenario. Do you think the Federal Government will take in more or less tax revenue with deflation? Do you think they will cut spending? Who is going to finance this growing deficit? How are we going to pay for the 11 million barrels per day of oil that we import? The only way the dollar could survive is if interest rates keep going up. If the dollar doesn't survive, what should you be holding? What if things just keep chugging along? Remember these things tend to last longer than anybody would believe. Then what should you hold? I don't want to be argumentative. I've invested heavily into what I believe is going to unfold and I just don't see how your scenario can happen. I do not think you are being argumentative. I give you credit for attacking a different angle than others have persued (over and over and over again). Have you read my blogs on deflation? Thoughts on Deflation: Deflation is in the Cards globaleconomicanalysis.blogspot.com A Conundrum About Conundrums globaleconomicanalysis.blogspot.com The Deflation Guarantee Act of 2005 globaleconomicanalysis.blogspot.com Same Data / Different Interpretation globaleconomicanalysis.blogspot.com The deflation debate heats up globaleconomicanalysis.blogspot.com The Kondratieff Cycle globaleconomicanalysis.blogspot.com Ido not think I addressed specifically tax revenues but I think what we will see is falling tax revenues worldwide. Will that make a difference? Of course it will. Take the UK for starters. UK / US Housing and the upcoming liquidity trap globaleconomicanalysis.blogspot.com Renovators' Nightmare globaleconomicanalysis.blogspot.com Do you think tax revenues are going to go up in the UK? Where do you think interest rates are headed in the UK? I suggest we will see falling tax revenues, a country printing like mad, and ta da... FALLING interest rates. We will find out soon enough as in August on the first cut, and so on and so forth on the second third and fourth cuts. If you at all think this is plausible, then tell me why the US will be any different. If it was JUST the US printing you have an argument. But it is not. Japan has a national debt 250% of GDP, Europe (one Issing leaves) will likely be cutting, Canada has interest rates far below the US (why?), and with the housing bust in OZ I think they are at the end of the cycle as well. So we take in less tax revenue. Will it matter? To who? The important questions (that I did address) are 1) destruction of money in a housing bust 2) consumer demand falling off the cliff like the UK 3) rising taxes or less govt spending in the US (If the republicans get throw out, look for the Iraq war to end and military spending to drop). Maybe I am in total fantasyland on military spending but if something has to give then by definition something WILL give. 4) Tariffs are a wild card and consumer spending will drop like a rock if Congress acts like that 5) No doubt the govt will print but you can take consumers shopping but you can not force them to buy. Recent experience suggests they will keep buying. BUT.... Recent experiences must take into consideration cash out refis and rising home prices. I think the party is over (just like in the UK) once housing slumps. 6) Japan printed like mad and it did them no good. Govt spending went up, tax revenues went down (I presume sinse Japan went from being a huge creditor to being a huge debtor) while interest rates in Japan fell to 0%. 7) I have commented on oil extensively. I believe it is recessionary if not deflationary. Costs are not being passed on and I gave examples. Thus I conclude that while you have taken a different angle, it is just another dead end as to producing higer interest rates. BTW, I will have yet another blog on deflation (tomorrow?) written last week but I have to hold them back for some obligations, I will post it here. I address some recent questions by inflationists, but so far you are the only one posing this line of attack on tax revenue. It does not work IMO. Numerous people mention oil, and that does not work either as I have addressed. Mish

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