Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (2387)	11/19/2003 8:08:13 AM
From: el_gaviero	Read Replies (2) \| Respond to of 110194

Russ --- re: “WFYT” as yerba mate, bitter Argentine medicine. Interesting and perceptive comments. I have a minor caveat. I know Argentina, and the good ole USA isn’t Argentina (((yet))). Argentina is not a country, bur rather, a certain number of square miles of earth surface occupied by a fragmented, totally dis-articulated population, where trust does not extend much beyond the family unit, if that far. Argentina is a feudal regime dressed up in the garb of democratic institutions, easily dominated by a handful of powerful men, who gain control of the reins of government, and suck up for themselves most of whatever is created in the way of wealth. Last year Argentina got knocked down hard but kept on ticking. The reason why: she was never very elevated in the first place. She fell but not from high up. Most of the people down there are used to struggling to get by. Last year they did what they always do, they just did it a bit more intensely. On the other hand, the USA is a country (or used to be one), and is built up very high. The USA needs the sort of medicine you suggest the Asians will be spooning out(“WFYT” – e.g., cut back on debt expansion, rein in consumption, etc. etc.) Trouble is, such measures would knock us down, and if we fall, we won’t be falling onto the sidewalk from two steps above the sidewalk. We’ll be falling from 60 stories. This fall is going to have to happen. We no longer have the power and wealth to live at 60 stories. But in no way is this fall going to be negotiated, that is to say, in no way is this fall going to be voluntarily acceded to. My minor caveat is with your timetable. Too fast and too orderly. Washington will want to look as if responding to a crisis not of its own making. The last thing Washington wants is to appear to be in anyway responsible for the changes that are coming. The whole Inside-the-Beltway crowed will work to delay adjustments until something cracks. Then they'll heorically jump into action to save the country (and their own skins). I think we are only in act 25 of a 200 act drama.

To: russwinter who wrote (2387)	11/19/2003 9:25:44 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Obviously, the Asians hold the chips used for the stabilization of the American situation, but they're finally going to insist on a real, not the current phoney "all on the backs of Asians" defense of the US currency, even if they agree to some resettings. Let's just call it the new "well, fuck you too" (WFYT), Asian/IMF package for the US. The Chinese in particular need to cool off their economy and they are not going to care if American consumers retreat, they need that now anyway. I fully understand this wrinkle. Where it misses the boat is that China and Japan need US consumers to keep their economies going. Thus they are not likely to shoot themselves in the foot by refusing to buy treasuries. Even IF they do, it will affect the 10 yr and 30 yr more so than the fed funds rate. US spending will have to plunge and it will not be pretty for US stocks or bonds, but that does not mean the FED FUND rate has to change. Now, it is clear we need them more than they need us, but for now (and these things can go on far longer than anyone thinks possible, the world is dependent on keeping US consumers spending) Is this reckless to the point of being amoral? Hell yes it is. It will end in a deflationary crash, not an inflationary one as ther are NO jobs to pay off the debt. It all comes back to jobs. There are none. They are all in China and India. M

To: russwinter who wrote (2387)	11/19/2003 10:25:37 AM
From: ild	Read Replies (1) \| Respond to of 110194

Russ, your ideas are very sound. But there is no leaders in US who want to carry them out. Basically you are asking US citizens to voluntarily significantly lower their living standards. Do you see anyone to get elected with this agenda? Yes, for many years people in US were making $100 and spending $110. But they see no reason to stop doing so. The government doesn't want them to stop either. Only the real crisis will stop this. The credit bubble must burst first. Very often I feel like standing on the Titanic's desk and watching approaching iceberg.

To: russwinter who wrote (2387)	11/19/2003 10:42:49 AM
From: Crimson Ghost	Respond to of 110194

Russ: Another most interesting post! I would just add two points. Aside from the fundamental case for much higher interest rates down the line, a piece of basic investment logic comes into play. Namely any market that moves to an extreme in one direction because of manipulation will ultimately move to the opposite extreme when free market forces finally reassert themselves. I am also toying with the idea that we will see a fundamental restructuring of the international monetary system before long (probably after the election). The US has GROSSLY abused the privilege of having the world reserve currency and a lot of these privileges are going to be revoked one way or another IMHO.

To: russwinter who wrote (2387)	11/19/2003 12:57:25 PM
From: NOW	Read Replies (1) \| Respond to of 110194

your dreaming. responsibility of that magnitude is simply imposssible at this stage of the game. on the other hand, maybe you are right. such moves would cause such dramtic effects: a fire sale of assets in which the very wealthy and powerful could sweep in like vultures......might justy be a plan then....g/ng

To: russwinter who wrote (2387)	11/19/2003 4:27:21 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

I think we are at the point where the US is going to need an IMF style bailout (a la Argentina how could that be? the IMF bailouts address DEFAULT, which is not in the cards for US Govt. US govt debt is denominated in USD, which the US can print freely (unlike states such as California!). i don't think Argentina is at all an apt analogy, since their problem was that they had sovereign debt denominated in or linked to USD which they could NOT print freely. there can be no question that the US govt is capable of printing any nominal amount of currency to cover its obligations. the issue becomes one of how valuable in real terms that nominal currency will be. The WFYT style bailout is done the old fashion way, by pricing all this US debt more appropriately to the risk foreigner creditors take in lending to a bankrupt economy i think it is difficult to understand current Asian (read: Japanese) support for the USD if one thinks of them as rational "investors". they are not; they are simply trying to prop up the USD as they have done for 30 years. they have no choice in this matter, as their manufacturing infrastructure becomes, in effect, operationally insolvent at below around 90 JPY to the dollar. JPY at, e.g., 75 to the USD would not last for long before Japan experienced the most severe depression since the 1930s. thus they do not care no Dollar Confetti. they don't even really give a chit about these stupid trade wars. they have dealt with angry Congressmen and presidential degenerates for decades now. they just nod their head and keep on buying T's. China, OTOH, due to intensive capital demand domestically, is not anywhere near the point Japan is in ability to fund a massive structural C/A surplus for purposes of currency manipulation. nor, really, are the most of the other Asian countries which have been running C/A surpluses vs. US. (this will be increasingly so for Korea once the North collapses and they are stuck in a huge reunification quagmire [optimistic, non-Apocalyptic scenario], but who knows when that will happen.) so, again, it is important not to think of the Japanese as rational investors (any more than the Fed itself is a rational investor through bond monetizations)—rather, they are manipulators. personally, i think the IMF idea is cute, but the US is not a pimple on the butt of the world economy, like Argentina. instead, the US IS the “growth engine” a/k/a mouth that everybody in the ROW is gainfully employed in feeding. thus a US “rationalization” along the lines you envision would cause way too much damage to other economies for them to go along with it. not to say that the ultimate denouement will be less than horrific. but i think it will take place through crisis and out-of-control chaotic LLCF implosion which we can’t really picture well in advance. THE GAME HAS GONE ON TOO LONG AND THE CONSEQUENCES ARE TOO DIRE; THERE IS NO POLITICAL WILL TO IMPLEMENT CHANGE RATIONALLY, SO THE WORLD ECONOMY MUST EVENTUALLY “WALK THE PLANK”. so instead of WFYT, i say: WTP!