Think your analysis of the second to fifth quintile of the US consumer is correct. JSM isn't going to drive jack shit, including the economy. However, the very wealthy, say top 10%, still have the potential to panic and mobilize money, by selling USD financial assets, converting them to cash, and engaging in an inflationary Flucht in die Sachwerte. And yes, maybe hot looking women might be a sought after item, at least by the likes of me. Read my weekend blog: there are two economies, and a very high Gini coefficient.
But even more important are the foreigners I'm alway railing about. Are all the major players going to stand by and let the Fed grow the SOMA account at double digit rates or higher, or even high singles, as they "cut interest rates"? What if just one broke away, and say sold financial assets for a hard asset like oil for protection.
What if China said to Brazil, we will give you X US housing agency Old Maid Cards for your next three years soybean crop, lock, stock, and barrel? Then what if Brazil said they didn't want X US Agencies yielding 4.9% for soybeans, but might accept them for a marked down 7.0% yield. Of course part of the "credit", or portfolio value is destroyed, and a major credit contraction occurs, but the value of soybeans in this example inflates relative to the item exchanged; US debt securities. That's the transmission mechanism. The paper securities that we send the world for goods is debased, and is worth less, or correspondingly, requires higher vending borrowing costs to get those same goods. Or the US would have to exchange something of greater value than 4.9% Freddie housing IOUs (no scarcity value, and a declining credit). |
