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

To: Tommaso who wrote (33984)	7/21/2005 9:09:43 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

>>>You act as if everyone is going to pull all their money out of everywhere and just sit in cash.<<< Huh? Where did I say that? What I said was that there is not enough buying power in the United States to replace the purchases of Treasury bonds that have been made by foreign buyers. Foreigners (banks, companies, individuals, outside the United States) have been subsidizing the U. S. Government. If they cease doing this, or even slow down their purchases, the Federal Reserve may have to rescue the Treasury by monetizing U. S. debt. Also, higher interest rates will have to be offered. I was once spoken to with contempt similar to yours many years ago. At that time, I suggested that interest rates might decline from the 16% that many corporate bonds were then paying. "Interest rates ain't NEVER coming down," I was told. I think you might wish to go back and read more carefully what I said. Tom, with all due respect I really value you as a poster on my board. However, it really really gets tired asking the same questions over and over and over again. Lambeth-Palace completely stopped posting on my board over this very same question "where is the money going to come from". At the time I recall the 10 yr treasury was where it is now or close to it. It was sad to see a good poster leave over a fight about treasuries. I hope it is not happening again. Shortly after the argument treasuries rallied 50 basis points. My answer then was the same as it is now: Money will flow from stocks and junk bonds and agencies into treasuries. There is ENORMOUS pent up demand in treasuries. They are universally despised by the masses. Commercials are almost always long and small specs are almost always short. When have you EVER seen such pessimism rewarded where EVERYONE catches the bottom on something? In spite of the capitulation of Gross, Pulplava and thousands other like him despise treasuries. This is NOT the 1970's. Like it or not 1970's are not coming back. There are no wage or price controls are there(or do you see any)? Wages are not rising big time, and in fact wages are now declining. There is no job growth. It barely keeps up with immigration and births. In spite of those ENORMOUS differences, people here still think this is 1970. You assume it takes buying power in the US. I say 1) It is likely to be there 2) If it is not foreign buying may step up 3) repricing of risk may make of the difference 4) There is ENORMOUS pent up demand 5) Savings rate in the US is zero or near zero Do you doubt #5? Is #5 sustainable? If #5 is not sustainable how much money will there be to buy treasuries if the savings rates rises from zero to 3%? What happens if the US walks away from Iraq? Poof 100 Billion dollars a year are now no longer wasted. Is that unlikey when we throw Bush out on his ass? What happens when we stop buying so much junk from China and Japan? What will that do to the money they have to print and we have to make up for in trade balance? The US$ has to fall in relation to something. You like the British pound here? You really like the RMB here with their banks practically insolvent? What happens when the demand for goods and servicers drops below any amount of money the US decides to print? Hint: What happened in Japan in spite of mammoth printing efforts to stop deflation? No doubt I will be asked this another 30 times. Hopefully you accept this as an answer. Here is the short version 1) Pent up US demand 2) Repricing of risk Mish