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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (1995)	3/14/2004 2:10:24 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

But he comes down firmly on the inflation side. He argues (correctly I think) that no matter how large the debt burden, the Fed will monetize enough of it to prevent any deflationary collapse even at the price of a full scale dollar route. If they keep on monetizing it..... Treasuries will do well. They havent even needed to yet! By the time we get there IF they get there, the 30 yr will be in the 3's. The only way debt does not collapse in a heaping mess is if wages go up enough to pay it off, the US govt defaults, or the US govt gives money to individuals to pay off debts. Number 2 could happen but not for a long time, number three would screw big business and that is not likely, and wages sure are not going up under any circumastances that I can see. Thus, I maintain Saville is wrong. If he is right think of the omplications to treasuries and eurodollars. I WIN in either case IMO. mish

To: Crimson Ghost who wrote (1995)	3/14/2004 4:28:07 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

From Fillmore: Steve Saville chimed in on the inflation/deflation debate this morning. I cannot quote because of copyright restrictions. But he comes down firmly on the inflation side. He argues (correctly I think) that no matter how large the debt burden, the Fed will monetize enough of it to prevent any deflationary collapse even at the price of a full scale dollar route. Mish Reply: Saville thinks the the US can defeat deflation by printing enough money huh? Well isn't that is what they have been trying to do for 3 years. It did not produce any jobs or rising wages and all it did was add to the debt problem that needs to somehow get wiped out. That additional debt in the face of lower jobs and wages is enormously deflationary. How does printing more US dollars solve anyhing? If easy credit did not produce jobs and rising wages exactly how is this debt of individuals and states to be paid back? That is where people like Saville miss the big picture. Where saville an other totally lose it is the means to pay off the debt. How does printing more money, help pay off debt? It takes GROWTH to do that, and growth in INCOME and WAGES not hedonically adjusted an otherwise BS GDP numbers that are meaningless. OK let's go one step further and assume the govt gives everyone enough money to pay off all debts and only the federal govt has any debt left. Then the Federal govt defaults. Would that cause inflation? Of course it would but at what cost? Who loses? Banks, credit card companies, bond holders, pension funds, etc. In other words debts are wiped out (paid back with totally worthless $) and the WEALTHY suffer at the hands of the poor. Perhaps political upheaval will FORCE that issue at some point but not in the near term future. UNLESS and UNTIL the govt GIVES money away as opposed to making access cheap, debts can not or will not be paid off. This is what the inflationists fail to see. If the govt gave everyone enough money to kill off enough debt it would wipe out the wealthy. It would be a transfer of wealth from the wealthy to the poor on an immediate massive scale. Not gonna happen. Not yet. What if the govt prints all the money it wants (but does not give it away just makes access to it easy)? That is the curent scenario and it is not working. Debts are piling up with no means to pay it back. What if they print it and no one wants it? I think that indeed will happen. That is the BIG LIQUIDITY TRAP! It is coming your way. At some point credit will be given only to those that have little use for it. We are probably not too far off from where credit will NOT be extended to people out of jobs, and those living off of assets (houses and stocks) will have taken all the home equity out they possibly can, and without a job, and the shit will just hit the fan VIA bankruptcies and foreclosures. Credit WILL NOT be exteneded indefinately no matter how much money the US govt prints if credit risks get too high. Jobs and home equity loans/refinancings are the tipping point. Once that money is taken out and spent it is gone. Unless home prices continue skyrocketing up those miracles of survival are OVER. What's next? Saville and others NEVER answer that question and NEVER bother to figure out who the winners and losers would be if money was actually given away in enough quantity to reduce the debt burden. They never address the liquidity trap, nor do they address the credit issues, nor do they address the issue and ramifications of "free money". In sort, they have an over simplified version of things that fails to take into consideration real world actions and consequences. Japan did not solve deflation by printing money and neither will the US. If it was so so easy to solve deflation by printing money, why did Japan fail so badly for 15 years? Saville and others like him are WRONG. They can not work thru the complex ramifications of who wins and who loses if enough money is printed to really cause inflation, and they ignore the huge burden of debt in an environment of job losses, falling wages, and rising energy costs. If printing more money SOLVES those problems every nation on earth would be doing it. I WIN Mish

To: Crimson Ghost who wrote (1995)	3/14/2004 5:06:06 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

What to expect on tuesday FOMC Odds of a move in either direction are close to ZERO. Of more interest will be a bias change (doubtful IMO) or those pouring over every freaking word looking for a bias change at the next following meeting (extremely likely). The Eurodollar market went nuts on the totally meanigless change from "considerable period" to "patient" last time around. Now the question is: What does Greenspan hope to accomplish this time? My answer is 1) he does NOT want to produce another bond blowout top like last summer. 2) he will want steady or slowly rising refiancings preferably at variable rates (to reduce the risk to FNM) and to apply more stimulus over the short term 3) he will not want to spook either the stock market or bond market Thus look for him to say a bunch of mumbo jumbo that amounts to a lot of nothing, while he is exactly hoping for little reaction either way. Bearish treasury sentiment is probably good for him as long as it is not excessive. Expect treasury bears to pour over every frigging word in search of the "holy grail" that rates are going up. I expect many to THINK they founnd what they seek regardless of what he says. It is possible that he wants to talk up treasury YIELDS just A BIT but the the damage to FNM is probably already done so he will probably opt for the status quao. In short: The risks of inflation and deflation remain approximately the same but the consequences of being wrong are more on the deflation side so we will remain accomodative "for now". We are a bit concerned over jobs but feel job growth is likely just around the corner as the recovery is still on track. Budget deficits and social security remain a concern. Of course it will take him 3,000 words to say what I just said above, and it probably will not be anywhere near that clear either. Also note that treasury bears will look at the words "for now" and think this is the "big warning" for a bias change next meeting. Mish