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

To: Carlos Blanco who wrote (22878)	12/5/2004 7:20:47 PM
From: orkrious	Read Replies (1) \| Respond to of 110194

he lays out my view of the current and future interest rate situation much better than what i ever could... yes, and where he says The conclusion in quite simple and to the point - unless the bond market wakes up out of its drunken stupor and moves to increase rates on the long end of the curve soon, the dollar is going to continue its descent unchecked and as it goes, it is going to create a situation in which the once unthinkable is going to happen - foreign central banks are going to begin disinvestment of U.S. Treasuries which will create a vicious feedback loop in which selling will beget more selling as there is a rush to exit before the next guy does. maybe the long rates aren't rising because the fed is monetizing on the long end. if so, it would explain the dollar's relentless decline.

To: Carlos Blanco who wrote (22878)	12/5/2004 7:21:14 PM
From: NOW	Read Replies (1) \| Respond to of 110194

or perhaps it might happen only after the dollar has been devalued by so much (or there has been enough inflation) that very large portions of the outstanding debt have been rendered irrelevant." what do you mean by this?

To: Carlos Blanco who wrote (22878)	12/6/2004 1:52:01 AM
From: Kailash	Respond to of 110194

The Economist on the dollar economist.com "A recent paper by Nouriel Roubini, of New York University, and Brad Setser, of Oxford University, estimates that, if the real trade-weighted value of the dollar remains close to its average in 1990-2003 (slightly above current levels) and there is no change in domestic policy, America's current-account deficit would rise to 8% of GDP in 2008, and its net debt would increase to over 50% of GDP. In practice, such levels are unlikely to be reached because private investors would be unwilling to finance debts of that size without much higher interest rates and/or a lower dollar, both of which would help to shrink the current-account deficit." Roubini & Setser's paper stern.nyu.edu They make a number of good points. Outward foreign investments, for instance (let's not call it capital flight just yet), now exceeds inward foreign direct investment by $100-150 billion a year -- a figure that must be added to US borrowing needs. Their broader point is that the US is in a unique position of having shifting the risk associated with the debt over onto the creditors, as US debt is denominated in dollars. This makes is extremely tempting for politicians to devalue, and harder to adopt the necessary policies early rather than late. What appears to be happening is that China is gradually deindustrializing the US, reducing it to a "consumer economy" -- echoes of Wells' The Time Machine. Meanwhile, the pundits here rejoice at the slightest uptick in "consumer confidence", which signals that people still feel no need or incentive to save. The turnaround plan spelled out by Roubini & Setser involves a yearly reduction in the trade deficit of 0.5% over the next decade: if US creditors were convinced this would actually happen, we might avoid a collapse. But US indebtedness to the rest of the world wasn't even an issue in the election, and so far I've heard nothing from the current administration suggesting they intend to tackle it (or feel this is part of their obligation to voters -- Bush is eager to spend his 'political capital'). The more likely outcome, judging from current policies, is full steam ahead cutting taxes to the top 10% (let's be generous) and "endless war". You've got to take these people at their word, and it's just not part of their agenda to stave off a dollar collapse. Cheers, K