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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: GST who wrote (71198)10/6/2006 7:07:17 PM
From: mishedlo  Read Replies (2) of 110194
 
Mish has never dealt with several of the key aspects.
That is false but I changed my mind.
I will address each and every point AGAIN and hopefully it will unclog some memories.

1. We are a debtor nation with a zero net savings rate.
1a. The US was once a creditor nation. In fact we had a savings rate of +6% or so not that long ago. A negative savings rates is not sustainable and the US will once again have a positive savings rate. Book it.

2. We have a huge government deficit.
2a. Government debt is not the biggest problem. Not by a long shot. Japan has a national debt of 150% of GDP. The US is about 70% of GDP. Japan is not in hyperinflation but deflation at that rate. This shows you just how out of whack things can get before a currency collapses. Consumer debt is the biggest problem we are facing now. The reasons should be obvious.

3. We have a huge current account deficit.
3a. If we stop spending like drunken sailors that will change. One of the ways to fix that is for the US to save more and spend less. Obviously a deflationary force when that happens.

3. Our lack of savings and debts make us extremely dependent on foreign credit to service our debts.
3a. Yes. But you are repeating. I suggest the US savings rate will go up. But it hasn't yet. But shouldn't the dollar be collapsing then in your model? Note too that there is now less buying by FCBS of treasuries. Most here thought the US dollar would crash and interest rates soar when that happened. Instead the reverse has happened.

4. The risk premium we pay on credit is very small.
4a. This is a new one but adds to my case. Yes it is small but increasing. Evidence is easy to find in the new credit lending guidelines for mortgages and recent widening of credit spreads to treasuries.

5. The slower our economy the more we will pay for credit -- the risk premium is a function of how fast we grow. Less growth means more risk.
5a. I disagree. More importantly so does the bond market. You are simply wrong.

6. The slower we grow the more both fiscal and monetary stimulus is added.
6a. It is certainly a hypothesis on your part that is not proven. But I must note that it seems you are concerned only about the monetary stimulus (an Austrian credit issue) while conveniently ignoring a collapse in credit by bankruptcies and foreclosures, etc. Which way do you want it?

7. Housing will slow our economy.
7a. Obviously. A point enormously in my favor.

8. A slower economy will be persistent as our credit risk rises and the cost of debt incurred adds to our current account deficit.
8a. Again you are making unproven hypothesis with which the bond market disagrees.

9. Even as our long rates rise, our dollar will go down. This will add to the currency risk, adding to the cost of foreign credit.
9a. Long rates have been sinking or haven't you noticed. In spite of that the dollar has been rising or haven't you noticed. One of us predicted that and one of us predicted the opposite.

10. A falling dollar will increase the cost of imports.
10a. An unsupported hypothesis. Prices of goods from China and India, and Vietnam, or wherever have been continually falling in spite of what the dollar has been doing. It is called overcapacity, cheap labor, and global wage arbitrage.

11. Slow growth and rising interest rates will add an enormous burden to existing public debt. As the economy slows, the cost of foreign borrowing rises and the federal debt will soar due to lower tax receipts.
11a. Once again you overlook everything around you that suggests differently. Do you follow the bond market by any chance?

11. We face stagflation -- no compelling case has ever been made for deflation -- and certainly not by Mish who has never addressed these issues.
11a. I have now addressed all of your issues as in fact I have many times before. You can keep on repeating nonsense or you can remember this post.

I have repeatedly answered your questions many times and if you are honest you will have to admit that you have heard me say all of those things before except for #4 which seems to be a new question, now addressed.

I decided to address your questions (for the nth time) to put you on the spot. I have asked you at least 5 times to define your basket of goods and services as well as the weightings by which you want to measure inflation.

Step up to the plate and tell me your basket of goods and services and your reasons for including or excluding the stock market, housing, etc, as well as your weightings.

Now I answered your questions (multiple times), will you answer mine?

Mish
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