At the moment I am assigning to the realm of "unknowable" how a further deflationary crash effects the USD, and precious metals. I have a pretty good handle on how the existing deflationary crash combined with FED monetary and GOV fiscal stim plays out on the USD, and precious metals. We're seeing that now of course. We also know how the first deflationary wave played out for USD/PM before FED and GOV got going.
Of course, you can't step into the same river twice, right? :-) So Heraclitus teaches us that we have to take an interest in whether the next massive deflationary leg down does something surprising to the USD/PM. I think we potentially depart structural dynamics, and move more deeply into behavioral/psych. dynamics.
Sidebar: this again gets into the UK post-WW2 case vs the USSR collapse case. The USA does not fit perfectly into either case, but seems to share aspects of both.
Maybe the Obama econ team is thinking of combining huge Defense spending reductions, combined with tax increased, lower deficits, but then continuing with USD debasement? I find it hard to believe that having come this far, however, on the Keynesian road that they are gonna get all hard money/tight money on the country now. That simply breaks the system in a different way.
You see, if I am holding lots of USTreasuries in SEP of 2008, I am so excited and happy because I am thinking "yay! Recession! My UST prices go sky high and I win!"
But if I am holding lots of UST now I think "Holy crappers, if these guys do a tight money/sound fiscal policy move now, it will drop tax revenues even more, and how will they service the debt?"
Hence, unknowable.
I think one has to also watch gold and especially gold equities to see if they are ready to finally, finally make the migration from risky assets to non-risky assets. There will be many, who read that question and will chortle and say never!
Sometimes all I can do is come up with better questions. :-)
G |
