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

To: Umunhum who wrote (36407)	7/20/2005 7:55:17 PM
From: futures speculator	Read Replies (1) \| Respond to of 110194

I don't want to be argumentative. I've invested heavily into what I believe is going to unfold and I just don't see how your scenario can happen. Which scenario is that? Let me add my 2cents: I think it's quite possible to see a repeat of what happened in the mid 80s, where dollar was depreciated by 50% to "wipe out" debts. Avg US Debt duration is just 4.5yr. This also correlates with doing nothing, allowing/endorsing the housing bubble. With households going deeply in debt to afford a house, a tangible thing they can hold onto, while purchasing value of paper money fades. The memory of the huge counter-trend rally of DollarIndex from 80 to 92, without any pullback, over the past 7months will also have its psychological impact with dollar bulls. The talk about "weak dollar" will start when Dollar approaches 80 again. I think the effects of one-time waterfall tax receipts in 2005 and practically tax-free (5.75% vs 35%) foreign profit re-patriation by corporations (to end Oct-2005) has finished. Also the media propaganda about "how bad the alternatives are" (Euro, Yen?) will play its role. People still express their Schadefreude: "Look what happened to Buffet and Gates going against the almighty dollar". In conclusion, I think a -30% (DX to 60) is well within the limits of dollar holders, i.e. they wouldn't dump their dollars in panic and cause a "run on the dollar". And US will pay back a lot of its debt maturing over the next 5yr with a cheaper dollar.

To: Umunhum who wrote (36407)	7/20/2005 11:55:31 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

Let's look ahead with your scenario. Do you think the Federal Government will take in more or less tax revenue with deflation? Do you think they will cut spending? Who is going to finance this growing deficit? How are we going to pay for the 11 million barrels per day of oil that we import? The only way the dollar could survive is if interest rates keep going up. If the dollar doesn't survive, what should you be holding? What if things just keep chugging along? Remember these things tend to last longer than anybody would believe. Then what should you hold? I don't want to be argumentative. I've invested heavily into what I believe is going to unfold and I just don't see how your scenario can happen. I do not think you are being argumentative. I give you credit for attacking a different angle than others have persued (over and over and over again). Have you read my blogs on deflation? Thoughts on Deflation: Deflation is in the Cards globaleconomicanalysis.blogspot.com A Conundrum About Conundrums globaleconomicanalysis.blogspot.com The Deflation Guarantee Act of 2005 globaleconomicanalysis.blogspot.com Same Data / Different Interpretation globaleconomicanalysis.blogspot.com The deflation debate heats up globaleconomicanalysis.blogspot.com The Kondratieff Cycle globaleconomicanalysis.blogspot.com Ido not think I addressed specifically tax revenues but I think what we will see is falling tax revenues worldwide. Will that make a difference? Of course it will. Take the UK for starters. UK / US Housing and the upcoming liquidity trap globaleconomicanalysis.blogspot.com Renovators' Nightmare globaleconomicanalysis.blogspot.com Do you think tax revenues are going to go up in the UK? Where do you think interest rates are headed in the UK? I suggest we will see falling tax revenues, a country printing like mad, and ta da... FALLING interest rates. We will find out soon enough as in August on the first cut, and so on and so forth on the second third and fourth cuts. If you at all think this is plausible, then tell me why the US will be any different. If it was JUST the US printing you have an argument. But it is not. Japan has a national debt 250% of GDP, Europe (one Issing leaves) will likely be cutting, Canada has interest rates far below the US (why?), and with the housing bust in OZ I think they are at the end of the cycle as well. So we take in less tax revenue. Will it matter? To who? The important questions (that I did address) are 1) destruction of money in a housing bust 2) consumer demand falling off the cliff like the UK 3) rising taxes or less govt spending in the US (If the republicans get throw out, look for the Iraq war to end and military spending to drop). Maybe I am in total fantasyland on military spending but if something has to give then by definition something WILL give. 4) Tariffs are a wild card and consumer spending will drop like a rock if Congress acts like that 5) No doubt the govt will print but you can take consumers shopping but you can not force them to buy. Recent experience suggests they will keep buying. BUT.... Recent experiences must take into consideration cash out refis and rising home prices. I think the party is over (just like in the UK) once housing slumps. 6) Japan printed like mad and it did them no good. Govt spending went up, tax revenues went down (I presume sinse Japan went from being a huge creditor to being a huge debtor) while interest rates in Japan fell to 0%. 7) I have commented on oil extensively. I believe it is recessionary if not deflationary. Costs are not being passed on and I gave examples. Thus I conclude that while you have taken a different angle, it is just another dead end as to producing higer interest rates. BTW, I will have yet another blog on deflation (tomorrow?) written last week but I have to hold them back for some obligations, I will post it here. I address some recent questions by inflationists, but so far you are the only one posing this line of attack on tax revenue. It does not work IMO. Numerous people mention oil, and that does not work either as I have addressed. Mish

To: Umunhum who wrote (36407)	7/21/2005 7:21:57 AM
From: John Vosilla	Read Replies (4) \| Respond to of 110194

I don't see his scenario unfolding either but he obviously has some good points that have been rehashed by the world is coming to an end crowd for ages. Seems they all fail to grasp the ability of the US to continue to grow and expand in a way not available to Japan or Europe. Tons of excess land for development, high population growth and the most sophisticated capital markets and marketing minds on the planet. It seems pretty obvious a major dollar devaluation is in the cards and much higher interest rates over time as the imbalances of 80% or so of worldwide savings to fund US deficits can't continue without some major shakeout. So the coastal bubble markets take a dive and the loss of market cap could be $3 trillion dollars over the next 5-7 years. We've been through that and much worse with the S&L collapse, 70% drop in commercial RE and major drop in residential RE in not only coastal bubble markets but the whole oil patch which this time will be spared. As long as our banking system and stock market stay sound we will survive. Maybe Mish, besides being incapable of addressing my other points should also answer why even with the bursting of the housing bubbles in both Australia and the UK their stock markets are at all time highs if we are entering a housing bust lead deflation/depression/K-Wave world coming to an end scenario?