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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (4377)	2/18/2008 12:54:24 PM
From: Real Man	Read Replies (2) \| Respond to of 71446

I think structurally US economy is worse off than prior to the Great Depression due to the credit bubble of epic proportions. The Fed will try to inflate the mess, and might try to blow another stock market bubble. All that at a cost - the clownbuck. In the best case scenario I see 5-7 more years of stagnation/slow growth, as the Fed tries to spread the pain over time. In the worst case scenario I see extremely high inflation or hyperinflation. The government can't afford to bail out both the Real Estate and the stock market now, because essentially the government is broke. Either SS and medicare will have to go, or tons of printing will have to commence. This won't be immediate. First they will issue more T-s. The positive thing - the DOW/gold ratio is now pretty reasonable, but that does not mean the secular bear market is over. It just means stocks have declined in real terms for 8 years now.

To: Giordano Bruno who wrote (4377)	2/18/2008 2:34:36 PM
From: RockyBalboa	Respond to of 71446

jj and vi after reading the piece I tried to put some color on the term structural viability. What could it be, aside from popular explanations including trade imbalances (which are the result of underlying shifts in economies, but I come to that in a minute), budget imbalances and shifts in currency rates: First whats an economic structure. Like any structure, concrete or wooden it can mean anything. As mentioned in textbooks or various policies of central banks a set of target parameters of the structure could mean: stable currency balanced budget a normal yield curve steady economic growth and low inflation little unemployment low readings in obese / addict / sick people? ... a positive overall (sovereign and personal) savings rate a (healthy?) distribution of production and services, this is a very ambigous term; however it could mean that there are no major dependencies on other countries in gaining access to essential goods and services. From that, it is hard to tell which of those are essential in making an economy viable or sustainable. Those we read today are only the results of the black box called economy. Though i admit, some testing can be done: Like, lower the rates by 25, 50 or 75 points, then measure the GDP next quarter. Like, drop the dollar by 5%, then measure the new trade deficit. What was not viable then? We could ask historicians and they could provide a couple of examples, bubbles included, of structures which were not viable: The Roman Empire which failed not only because of a persistent imbalance of producing areas but when they could not secure their living by looting their colonies any longer. The Weimar Germany: Ill fated by design Weimar Germany tried to buy time and some prosperity through money printing while real production declined over years. The end result is well known, a dictatorship which much like the Romans in the end lived by stealing, simply put. The Soviet Union and the Eastern Block: First, a well thought experiment of central planning and, like the U.S., outsourcing production to friendly countries. What made them a failure was a double whammy: by having not to compete on world markets they ultimately lacked competitiveness and, motivation to really develop things. They may have been good producers, but by lacking skill and motivation to improve things they haven´t survived the first day of open markets (excessive military expenses may have contributed to the fall of the Eastern Bloc; those expenses had no economic value). Now what relates to the viability of the U.S. economy: Most people look at economic results, like, GDP real growth, deficits etc. Most overlook that the U.S. is at large dependent from those countries who produce the stuff for them, China, the Americas, in part, Japan. Some realize that much like Europe the U.S. has become a nation of consumers. Only few point out that GDP growth is "hollow" and hardly based on accumulation of personal equity. Trade deficits can no longer be cured, capital balances can be equalised through selling of assets or investment products. Selling assets can be done once, perhaps twice. Selling investment paper (and we know, US investment banks were good at that) can be done many times over, and hopefully at inflated prices. We will only know later that this was akin to looting those who produced goods for us...but as in earlier examples, looting others can not be repeated.