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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Broken_Clock who wrote (86180)9/12/2007 7:05:16 PM
From: robnhood   of 110194
 
Found on voyforums Kitco refugees

<<Example of Vangel -- JoeB (), 17:16:17 09/12/07 Wed
Commenting recently on the dollar breaking 80 on the index:

We have had this discussion on this forum before and I still remain convinced that the Fed is painted into a corner from which there is no easy way out. If it does not lower rates the US economy will collapse totally as will the tax base used by local state and federal governments to fund their spending. Many people will walk away from their homes and the level of social violence will spike up as the social assistance programs are cut. When treasuries and municipal debt notes come due there won't be any money available to pay the bondholders. That would also kill the currency because it is the other side of treasuries. Voters will pick candidates that will take away the Fed's ability to print notes and the Fed will be gone.

If the Fed drops rates, it will signal that it is willing to sacrifice the dollar for a short term postponement of the crisis. That can happen one of two ways. In the first the Fed gets cooperation from the BoJ, BoC and the ECB and the decline is manageable. (I have my doubts about the ability to manage a popped bubble but the theory is there for me to accept the argument even though I don't like it.) In the second scenario the USD crashes as the Argentine Peso did a few years back and US consumption will collapse as domestic prices explode. In both scenarios the folks who were advocating holding 'cash' and bonds will get killed and won't benefit from the actual deflation that comes when a fiat currency and debt denominated in that fiat currency move sharply towards intrinsic value.
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