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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (36588)7/22/2005 1:24:05 PM
From: GST  Read Replies (1) of 110194
 
Hi Mish: I respect your often persuasive analysis and take your position very seriously -- and that is why I give it thought. I do believe that we will become more dependent on foreign capital flows, not less for two reasons:

1. Our government deficit will INCREASE -- it will balloon when our economy is weak and this will continue to be mainly financed from abroad, even if I accept that US savings rates will go up the gap will still be of the Grand Canyon variety.

2. Our current account deficit will INCREASE -- it will balloon because we will buy MORE from China et al and not less as we turn to the lowest cost producers for everything as a way to offset our newfound status -- relative poverty. Shopping at Walmart will no longer be the province of the working poor -- it will be the place where the former middle class struggles to adjust to the post bubble realities of their day to day life. You yourself realize that the price gap between China and the US is so huge that currency revaluation does nothing for our trade balance. A bursting of the housing bubble will ADD to the pressure to buy things as cheaply as possible -- unfortunately all we will have to offer in trade is an increasingly worthless pocket full of dollars.

The financing of the current account deficit will put further strain on the dollar.
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