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

To: mishedlo who wrote (36447)	7/21/2005 1:33:17 AM
From: jackjc	Read Replies (2) \| Respond to of 110194

Mish, I thought Robert Blumen made a good presentation for inflation, answering some of the questions you claim are not being addressed. He referred to recent pro and con posts on the subject, don't know if he meant this thread. Have you posted any response to this, I may have missed it ??

To: mishedlo who wrote (36447)	7/22/2005 12:00:44 AM
From: Umunhum	Read Replies (5) \| Respond to of 110194

<If you at all think this is plausible, then tell me why the US will be any different.> Because the US is borrowing over 70% of the worlds savings and this figure is growing. This is the elephant in the room that you are completely ignoring. <So we take in less tax revenue. Will it matter? To who?> I cannot believe you don’t think this is an issue. If the US is taking in less tax revenue, then more money must be borrowed – which causes interest rates to escalate. <The important questions (that I did address) are 1) destruction of money in a housing bust> You are assuming a housing bust. We could also have a dollar bust or a combination of the two. <2) consumer demand falling off the cliff like the UK> Again, this is the elephant in the room and you are acting as if it isn’t there. If the consumer stops spending, then there is no money being recycled to buy US treasuries. And yet interest rates drop? It doesn’t make sense. <4) Tariffs are a wild card and consumer spending will drop like a rock if Congress acts like that> The tariff issue is the desire of the government to devalue the dollar but we can’t as long as China and a few other countries have their currency pegged to the dollar. The US is basically saying we want to devalue our currency and you’re not letting us. Somehow in your twisted logic, interest rates are going to decline even though the dollar is being devalued. <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.> I believe if you double everyone’s credit line, their spending will go up. <6) Japan printed like mad and it did them no good. Govt spending went up, tax revenues went down (I presume since Japan went from being a huge creditor to being a huge debtor) while interest rates in Japan fell to 0%.> The Japanese are savers; Americans are spenders. Comparing the two is like believing that a giraffe will enjoy hamburger because a lion did. Plus again you are ignoring the fact that the US is absorbing over 70% of the world’s savings and Japan was a net lender. <Thus I conclude that while you have taken a different angle, it is just another dead end as to producing higher interest rates.> I conclude the exact opposite and my money is where my mouth is as I am short 20 TYU5. You claim I reason the following: You look at the current UNSUSTAINABLE path, realize it is unsustainable, yet project commodity prices out into the future as if it is sustainable. My reply is you look at the unsustainable path, realize it is unsustainable, yet project interest rates to decline when there is no one left to fund the growing US deficit. And to top it off, all this is happening while the dollar declines in value. It just doesn’t make sense. I realize demand for commodities will go down but the value of the dollar will fall faster so the net net is commodity prices will go up. The bottom line is that the bottleneck that is going to crunch the economy is not credit creation. There is no limit to the amount of credit that can be created. Especially when a country devalues it's currency which is exactly what the US wants to do. The bottleneck is you can only borrow 100% of the world's savings and our current trajectory has us on a path to do this. Peak Oil could cause the dollar to tank and interest rates to skyrocket too as everyone holding treasuries tries to cash them in for energy.