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Politics : Welcome to Slider's Dugout

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To: Amark$p who wrote (15019)	2/3/2009 10:43:36 AM
From: jim_p	14 Recommendations Read Replies (3) of 50418

Let's get the thread back in line discussing the economic outlook and stocks. The debate continues on inflation vs. deflation. The way I see it looking at the big picture, with excess capacity and unemployment both at very high levels and rising, the only way we get hyper inflation is if the rest of the world losses confidence in the USD due to the rapid increase in debt to GDP, or if we are forced to monetize our debt to finance the deficits going forward. We now have three years behind us in the housing correction and one year behind us in the bank crisis/deleverage process. Given history and given the extent of the leverage in the system the very best we can hope for is a downturn lasting 6 years, with the most likely scenario still being 8-10 years. The fact is there is very little our government can do to shorten the process, but there is a lot they can do to make it a lot longer and given the first few weeks of this administration I’m leaning in favor of it lasting a lot longer due to government mistakes. The simple fact is we now have a permanent change in the spending and saving habits of the US consumer and that will not change for at least a decade if not a generation. The numbers I’ve heard being tossed around are that we had roughly $50 trillion of assets and roughly $25 trillion of debt doing into this crisis and we now have $30 trillion in assets and we still have $25 trillion of debt. Leverage has increased from roughly 50% to 80% in just over two years. And if you believe Merrill’s forecast they expect the world to lose another $14 trillion of asset value in 2009 alone. These are pretty scary numbers if they come true?? If most of the other major countries are have the same problems we are having, the question you have to answer is will the USD fall due to increasing deficits? The only other major countries I can find that have higher debt to GDP ratios are Italy and Greece. The US is at roughly 90% debt to GDP and is expected to rise to 110% in the next few years which is close to where it was after the deficits caused by WWII. The Euro zone is at 66.3% and is expected to also rise at about the same rate. So give the fact that all major currencies are under the same pressure, will the USD crash and gold will take off?? Looks like the odds are not as great as one would think listening to all of the pundits, but the risk is there so gold will perform as long as the risk continues to increase. Once perception changes back in favor of the USD (if it does) gold will correct back down. JMHO, Jim

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