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

To: glenn_a who wrote (91206)	2/3/2008 11:04:05 PM
From: GST	Read Replies (1) \| Respond to of 110194

The bursting housing bubble weakens the dollar -- the value of the dollar is far more important than US demand in determining US inflation rates. As for the central role of US demand in the minds of most Americans, any example will do -- but start with this one: the US accounts for 12 of global copper demand -- a 20% drop in US demand is a 2% drop in global demand, and that is easily made up for in booming global growth. US demand matters, but is not decisive in the way that it once was. What is decisive is the dollar, and the bursting of the housing bubble is a dead weight on the dollar. It drives up the US dollar price of everything traded on global markets. You might need to think about this before it sinks in -- the housing bubble is just one more nail in the clownbuck coffin.

To: glenn_a who wrote (91206)	2/4/2008 12:29:45 PM
From: John Vosilla	Read Replies (2) \| Respond to of 110194

'Please explain to me how the devaluing of the value of your house - for many people there most precious asset - is inflationary. That doesn't make any sense to me.' Well houses in many highly desireable fast growing sunbelt areas in the sunbelt are dirt cheap now.. From these levels they should trend in the same direction with gold the next decade whichever way that would be is all I want to say<g> realtor.com realtor.com

To: glenn_a who wrote (91206)	2/4/2008 2:48:46 PM
From: GST	Read Replies (1) \| Respond to of 110194

Glenn -- the issue in inflation is what is your money worth? When you buy a house, you turn your money into another asset -- a house -- and for most people you take on a huge loan, i.e. you don't own the house you own the mortgage and the bank owns the house. So long as your house goes up in value, the mortgage is valuable to you. This helps offset rising prices for everything else you require to live. If the house falls in value, then the mortgage you hold is of no use to you in offsetting inflation -- it becomes a lousy hedge. But it does not mean your cost of living is going down -- it only means your assets are going down and you must rely on your income to pay your bills. The assumption -- and it is a weak one at best -- is that since you have less money to spend then surely prices will go down. But they won't because you live in a country that relies on the kindness of strangers to foot the bill for everything from the gas that goes into your car to the cost of having troops in Iraq. They set the prices on international markets (as denominated in dollars) -- not you and me and that crappy house you or I bought with the big mortgage. You are competing with people from all over the world for stuff -- and you are losing. If you or I own a crappy asset priced in a crappy currency and live in a country with crappy finances (think trillions of dollars in debt and mounting) -- don't expect the rest of the world to come to your rescue with bargains. The gas you want to buy for your car is sought after by hundreds of millions of people around the world --- and they are not broke because they did this weird thing called "saving money" -- 25% of income in Japan and over 40% of income in China. So if you are broke nobody will care that much -- somebody else will be the buyer. The reason they foot the bill to this point is they thought we could make the payments. When we go broke and our houses are worthless shells, they don't want to loan us any more money or sell us any more stuff cheap. In the end it all ends up reflected in the price of the dollar -- and even a glance at where the dollar has gone in recent years says it all.