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

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To: bart13 who wrote (75359)	12/12/2006 10:10:53 AM
From: GST	Read Replies (1) of 110194

Hi Bart. Here is the problem -- our current debts to foreign creditors cannot be financed forever at current prices. Our future debts to foreign creditors to finance future consumption cannot be financed at current prices. Since we have very limited savings and very limited production capability the overwhelmingly likely outcome is that we will face higher prices for foreign credit as well as foreign commodities, goods and services. These price increases all reflect one fundamental dilemma -- we have no way to keep the dollar from falling in value in relation to other currencies. Bart, we live in what has become a truly global economy, but one which has extreme imbalances that are unsustainable. Currency risk is not priced into the cost for foreign borrowing. There is as some would like to say a "glut" of foreign savings and of course the US sucks up most of it to pay for what we cannot finance for ourselves. The era of cheap oil, cheap credit and cheap labor is drawing to a close. The end of cheap -- higher prices -- will slow our economy. The end of cheap will by definition raise our prices. And both of these things will happen at the same time. This is why it is so dangerous to give the time of day to the quack fringe that talk about the US as if the US economy was about the US economy. It is not. The US economy is about the relationship of the US to the global economy. In economic quack land the US economy is treated in isolation, as if we were not running an $800 billion dollar current account deficit and a chronic government deficit roughly half that size -- all financed by foreign creditors. The worst 'analysis' is by those who compare the US to Japan -- two countries that are about as far apart in their situation and method of responding to economic events as you can get. Let me give an example -- the US had a Savings and Loan meltdown around the same time that Japan had a banking meltdown. We flushed the crap out of the savings and loan companies in a matter of a few years -- Japan refused to pull the lever on their toilet and let the crap sit in the bowl for fifteen years -- much of it is still sitting in the bowl. You could go on and on and on -- the US and Japan are in completely different situations and exhibit completely different behavior. We will almost certainly survive as a country. Educated people will do very well. But for much of the US economy there will be a generation of pain as the bills come due and the prices go up. For the uneducated, the poor and those who own no assets, the future is bleak. Long after puffed up pompous internet chat bloggers like Mish have cut and pasted their last article and milked his fifteen minutes of fame ranting about how inflation is an increase in money and credit we will be living in a US mired in debts that cost a fortune to carry and that we cannot pay off. These debts will weigh on the dollar like a dead bird around our necks. And the next generation will ask -- how could you do this to us?

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