This post is somewhat off thread but it does somewhat relate to the US predicament at the moment...
Re: Bernanke 3 Speeches next week. link
by: hammerfall_prophet (M/Montreal) 06/11/06 01:56 pm
Msg: 1414412 of 1414412
What nobody here seems to understand is that the feds don't give a damn about inflation. Inflation is the excuse. The real reason for rate hiking being extending their ability to borrow by issuing bonds. The US govt is borrowing at an unprecedented rate, to finance its Caspian oil adventure. China, Russia, Germany and France would like to prevent its success. Germany and France used to own Iraq, and the US took Iraq away from them by force. Ironically, China's growth depends on having a huge trade surplus with the US, so devaluations of the US dollar are too hard for them to stomach. So they paired their strong currency to the weak US currency. The only way they can pull that stunt off is by buying US bonds, and they surpassed Japan to become the world's numero uno US bond holder. But US bonds keep losing value, and when China tries to buy a US oil company or two, Congress votes to block the transaction, so those bonds China is holding aren't worth the paper they are written on.
There are 3 possible outcomes to the present scenario:
1) feds default on the bonds, lose their ability to borrow overnight, must print money to continue to operate, resulting in Argentina style hyperinflation (3-figure figures).
2) allow inflation to increase gradually -- sounds good at first look, but then Japan and China would give up on their bonds, dump them, and the feds would lose their ability to borrow overnight, all the same.
3) keep hiking interest rates -- black monday, followed bankruptcies, followed by public's inability to pay back mortgages, followed by banks repossessing the whole continent, followed by US being unable to buy China's crap, followed by China dumping its bonds, followed by feds being unable to borrow any more, followed by printing money, followed by hyperinflation.
Hmmm.... Seems all roads lead to Rome.
Long AMD (but make sure you hedge by shorting INTC.)
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