RE: Martin J. Armstrong
There is nothing in his webtracks or paper that suggests eminence in financial markets, so we are even.
The paper is a shout of fire in the theater, and has no data except two charts on 30 year bonds in dollars and yen which are quite interesting. Aaron Cooperband and I have discussed the yen carry trade somewhere else and he emphasized (but did not recommend) the uncovered trade and I pushed the covered trade. The uncovered traders (including lots of Japanese banks) made a lot more money until early October, and they have all been taken out and shot. The covered guys have not been injured, but their profits are much more modest.
Could this stumble initiate a world meltdown? I don't know about you, but I am quite proud to have ended up this hellish week with ten percent more equity and forty percent more cash in my options trading account than I had going into Monday, and I scarcely know what I'm doing. I suspect many serious traders made a killing -- exactly balancing what the highfliers lost.
I believe Armstrong (never like to handwrastle with people named that) is fundamentally wrong on the mechanics of the world money market today. He is right when he says "cash is king!" and that is the difference between today and 1929-33. In 1933, cash was not king, gold was. No country believed it could stimulate demand or inflate the economy by increasing the money supply. Roosevelt increased the price of gold from $20.50 to $35, and even so the FRB sterilized gold inflows because it was afraid of inflation. This fear bought us another crash in 1937. Traditional economics forbade going off of gold and we never did except for a few days. Other countries who did, entered into complex trading agreements (barter and beggar your neighbor) and forbade outflows. The world economy collapsed.
Keynes's great contribution was to teach that macroeconomic coordination (planning) of aggregate demand could increase employment and reduce human suffering. Few capitalists believed in Keynesianism then, but today, "we are all Keynesians." The trick is to utilize conservative measures, such as open market policy and tax cuts, to restore aggregate demand. We, like almost everyone else, will spend any tax cut before we get it. Security holders will sell anything to a buyer with cash. Within a few weeks we can modify demand so that a great crash today could be over in a few months -- if the authorities have the guts. Of course there are longer term effects. A diving dollar reduces imports (good for U.S. (from the official view)) and increases exports (good for us) -- let it dive. The high dollar has contributed to the balance-of-trade problem -- this should get easier.
Off course, everyone else has to balance their economies against the United States. If Argentina continues to peg against the $US, it will benefit from the plunge. If Korea tries the peg, so will they. If anyone depreciates against the dollar to increase trade, they may gain share but may suffer a loss of dollar volumes of exports, depending on the elasticity of demand for their particular set of export goods.
The key to the future is the US commitment to maintain near full employment in the face of massive deflationary pressure and general financial panic. I think the neo-Keynesian policy prescription is accepted, or at least understood, by every economist alive. Many will not view it as the best possible policy, but most will admit that it could work if we all pretended that it will work. What is required is that the world's monetary and tax authorities commit themselves (preferably in public) to global reflation. For you few speculators out there, may be a few weeks to go back and study the effect of the Plaza accords on the value of the dollar. When the (probably G-7) agreement is announced,you may want to buy aggressively.
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