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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 (38166)	8/9/2005 2:20:41 AM
From: GST	Read Replies (2) \| Respond to of 110194

I will drop it -- in my view your arguments do not come close to adequately considering the implications of the US in a global context -- but I will not pursue this discussion in view of the tone of your comments. I must say I was very disappointed in the hostile nature of your remarks. This is a very useful and on balance a highly respectful thread. I don't want to be part of a conversation that undermines its quality.

To: mishedlo who wrote (38166)	8/9/2005 7:16:46 PM
From: bond_bubble	Respond to of 110194

Mish, Russ, Monetary deflation can happen only when there is default. When there is monetary deflation, prices in general fall. When there is a monetary inflation, it takes some years for it to show up in the CPI (it should take longer if the inflated money leaks to the foreign nation). During monetary inflation, PPI (higher order goods) rises faster than CPI (lower order goods). I believe, the monetary inflation that started since early 90s have resulted in asset, oil inflation etc in 3-4 years. How long do you think once net bank default starts (total new lending less than total new defaults), CPI to fall? It should take longer for deflation in CPI - if the money flows back into the US from abroad (in other words, if there is a dollar depreciation). Ofcourse, PPI will start falling faster (like real estate, stocks etc) than the CPI. And I believe most of the misunderstanding lies in this transition state - transition from the CPI-positive to CPI-negative. Do you think by 2008/9, you will start seeing CPI price decline? (For instance - 2000 crash started showing disinflation only in 2003 Q2). I agree that, when depression is deep, oil prices would have fallen below 20$. Why? let's say, oil demand falls 50%, then US would be self-reliant!! US does generate about 50% of its need internally - i.e the dollar value against other currencies does not matter when the oil demand falls 50%!!! But this means a serious consequence to the standard of living - everyone will be using public transport - walking from bus stops to home/jobs. Let's say, steel demand falls 70%, then this would mean like (approximately) 70% drop in new cars made (or sold) - i.e I see that deflation is going to be so wrenching to our standard of living. My question to you: 1) Do you think, after the depression - dollar could have almost same exchange rate with most of the other currencies? All most all the adjustments taking place in the standard of living? i.e All americans living like chinese - using public transport, getting used to non-centralized AirConditioned building etc...? That is scary. One of the purpose of the deflation is to level the wages with everyone in the nation - And in a global economy - this could be the levelling with Chinese wages - and hence the chinese living standard? 2) Can the fed ease the transition from CPI-positive to CPI-negative by having higher interest rates? If the interest rates are higher, can the standard of living of americans - can it be maintained relatively higher than the chinese? 3) I think I understand your viewpoint that ONLY the US "financial parameters" decides the US financial path. And the foreigners may only have transitory effects. Do you agree? What do you think this temporary effect on interest rate will be? More precisely, will it ever cause a sharp rise in interest rate (may be because of temporary dollar fall) - and then the FED fights it eventually to zero interest rate? Thanks.

To: mishedlo who wrote (38166)	8/9/2005 9:13:00 PM
From: Fiscally Conservative	Read Replies (2) \| Respond to of 110194

Good evening mishedlo, Your points here are well taken by me. It is an interest for me to contemplate just where we are heading. " I have explained many times how the US$ can drop and prices drop and the answer is simple: overcapacity in conjunction with demand dropping faster than the US$ drops." Overcapacity should be a short term situation,imo,if that is what is witnessed eventually. The by product of over capacity is a shrinkage on the manufacturing supply side and then the eventual drain on much needed cash flow thereby creating a greater hardship on debt payments(especially on a rising tide in the Fed Funds Rate). How all this effects the $ I am still in the dark. I believe the Dollar is constantly manipulated by forces outside our domestic borders. Todays markets,in an ever increasing global landscape,are greatly influenced by the currencys they interact with. Buffet is no fool,but I have to wonder exactly just where he is placing he bets now. Where I hang my hat I see inflation and it is just beginning. This is just my opinion and appreciate all rebuttals.