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

To: Wyätt Gwyön who wrote (53990)	2/16/2006 11:12:44 AM
From: GST	Read Replies (3) \| Respond to of 110194

The housing bubble replaced the stock bubble as the "engine of the economy". Since the housing bubble has come to the rescue of the economy, we climbed further and further out on a limb with stupendously large government deficits where only a few years before we projected surpluses, a trade deficit of mind boggling size and a combined current account deficit that defies all logic and, so far, has defied gravity. These feats of gravity defying daring are likely to come to an end if, as so many here assume, the housing bubble bursts. The bind bubble requires recycling the current account deficit, and the dollar cannot stay aloft without that support. The economy did not die after the stock bubble burst -- it found new life support techniques in the housing market. It is hard to see what new artificial means of life support will come along to enable the US economy to grow and finance its ridiculously shaky financial position -- the buck stops with the buck.

To: Wyätt Gwyön who wrote (53990)	2/16/2006 11:18:12 AM
From: mishedlo	Respond to of 110194

if you want to argue for a US housing bubble collapse triggering a dollar collapse, you will have to explain why it didn't happen when the US stock bubble crashed. Exactly from 1995 all the way up to 2002 in fact futuresource.com I still want an answer as to exactly what it is that is causing the US$ bubble that he sees. Given that he defines inflation as a persistent increase in prices I can not get an answer if those prices include stock or not. If not, then he must be like Greenspan in his beliefs that bubbles are best dealt with in the aftermath. Then again perhaps he wants stocks in his basket of goods and services. Which stocks and what basket? It is impossible to get ANY answers from him on anything other than for him to repeat his belief that there is a US$ bubble that is of overriding concern, and inflation is running rampant and we just have to trust him on that because he refuses to identify his basket of goods and services. Mish

To: Wyätt Gwyön who wrote (53990)	2/17/2006 2:23:37 PM
From: TimbaBear	Read Replies (2) \| Respond to of 110194

if you want to argue for a US housing bubble collapse triggering a dollar collapse, you will have to explain why it didn't happen when the US stock bubble crashed. I'm not going to make GST's arguments for him, but I will present my own thoughts on this issue: The USD is as strong as it is, in no small measure due to the US consumer buying the bulk of his stuff overseas. The amount of that purchasing has been phenomenally increasing over the last 5 years. During the first 4 of those 5 years, the FCBs of those foreign manufacturing countries have bought USD to support the USD and keep their own currencies weak relative to each other not relative to the USD. Over the last year (or so) those same FCBs have greatly diminished that practice in what appears to be a private consensus to do so. During the same period of time (5 years) the US Federal deficit has increased by more than $1 Trillion USD. This is important because the USD is a fiat currency, not a commodity-backed one. There will come a point when the ability of that fiat to be met will be called into question, just as it would for any individual or corporation whose spending has ballooned his/their outstanding debt to questionable sustainability. The statistics released over the last 5 years also strongly indicate that the profligate consumer spending has been the product of home equity extraction fueled by rising housing prices. Therefore, if decreasing housing prices put a halt to that equity extracting ability and thus spending, it brings into question (perhaps) the wisdom of FCBs' continued holding of the sizable stores of USD and, perhaps, switching out those holdings for a fiat that isn't quite as extended credit-wise or into commodities which don't need to rely on fiat. So, to answer your question of why now and not when the dot.com bubble burst: 1). Then the consumer didn't slow down, now they are (same stores sales are up less than inflation). Thus less incentive exists for foreign FCBs to hold increasingly extended fiats. 2). If housing slows, the whole US economy will slow thus removing the effectiveness of trying to bolster the fiat with increasing taxes. 3). The governments of the foreign manufacturing nations seem to have reached their fill of USD holdings after buying in excess of several trillion in USD holdings over the last 5 years. 4). US Congress is showing no real impetus to slow the growth of spending and is seemingly also embarked upon a course of foreign policy designed to cause USD weakening. 5). If the appeal of the USD holdings wanes, then interest rates will have to increase to entice the unwilling. Higher rates brings into even more questionable status the fiat of such a tremendous debt load. 6). FCBs have had 5 years to figure out their own answers to the dilemma of: "But the USD is the world's reserve currency! It's too big to fail!" Other than those items, nothing else comes to mind at the moment regarding what has changed between now and then. Timba