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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 (50923)	1/23/2006 12:47:05 PM
From: GST	Read Replies (1) \| Respond to of 110194

<Your model based solely on the US$> I have no "model based solely on the dollar". I have a viewpoint that is not blind to the vulnerability of the dollar.

To: mishedlo who wrote (50923)	1/23/2006 12:57:50 PM
From: GST	Read Replies (1) \| Respond to of 110194

<productivity improvents can mask TRUE inflation (defined as an increase in money supply and credit).> Again you resort to a silly definition of inflation divorced from prices. As for productivity improvement, it does nothing of the sort. Productivity is simply a matter of improving the efficiency with which we turn inputs into outputs. Productivity provides opportunities for growth -- but of course it is not automatic that growth follows. Productivity creates the possibility of growth by freeing up resources for other uses. Money supply grows to provide an exchange medium for potential real growth. Money supply that grows apace with productivity has a low probability of being inflationary -- Mish you can't even take care of the basics let alone deal with a broader "model" of what has happened or will happen.

To: mishedlo who wrote (50923)	1/24/2006 8:25:45 AM
From: russwinter	Read Replies (3) \| Respond to of 110194

It ignores the cause was a bubble in credit! It should be obvious to ANYONE that a bubble in credit caused this echo boom in housing. I have no doubt that Russ would agree with that statement. It should be equally obvious that the Naz bubble was fueled by credit and money supply growth that worked its way much more so into the stock market than it did prices. Again, my views allow for that. And again, I bet Russ would agree with that statement. > Yes, the Bubbles were fueled by excessive credit creation, and resulting money supply growth. Let's call that causa promixa. However, it is important to look at the causa remota, and I generally feel GST has described that. The fuel (causa remota) for the credit creation (causa proxima) is the market distorting enabling behavior of FCBs in buying US Old Maid Cards in this decade. They now own $1.536 trillion, including and especially about $431 billion in very overpriced agencies. They are overpaying for these securities, and it's been a key factor in allowing a bond AND credit Bubble to develop. idorfman.com It should also be clear that the USD and US interest rates are highly vulnerable should this willingness to buy overpriced securities in an overpriced currency reverse, panic, or even stall. I have been presenting evidence that it has stalled already. idorfman.com You have asked where would they put the money, and "what other options do they have"? I've been pointing out for the last two years, that the answer is some "other use" and store of value (flucht in die sachwerte) and not just another currency: bank bailouts, infrastructure, oil reserves, gold, food stores, weapons, other currencies, loans to real friends, allies and neighbors versus US consumers, anything that is more productive. Once it became obvious that FCB assets were shifting, then speculators amplify it, by renting or holding positions. I think that's been happening and explains in part the big move in commodities beyond normal supply/demand characteristics. That has now created more Bubbles. You and GST have argued that there are yield levels that will support the USD. Maybe, maybe not, so far maybe. But GST is correct in theory here because he is pointing out that money will flow out (not into) of USD debt once the US economy falls apart. Therefore I really doubt if a US Treasury note yielding 4.35% will become a flight to safety asset in this environment. In otherwords the perception that the USD and USD debt and securities is AAA, blah, blah, blah, will be tarnished, and that will cause higher not lower rates. Causa proxima of higher rates on US debt is a credit revulsion and downgrade. In the likelihood that money flees US securities and the USD, then prices paid for things that are necessities, that people actually need, will move much higher in the US. The prices of things people need to get rid of because they are overleveraged in them will fall.