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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (177970)	1/20/2009 12:58:38 PM
From: butschi2	Respond to of 306849

"2. Tens of trillions of dollars in bailouts will leave the USA with deficits that no amount of taxation could come close to paying off. As such, the plug will eventually be pulled on the American debt machine as countries like China and Japan will refuse to buy up our debt---unless of course we use gunboat diplomacy to compel such action, which would of course be suicidal." I would expect China and Japan to keep buying US debt, because otherwise their currencies would appreciate fast and furious. They are although in a bind, if they invest in other currencies or at home their exports will slip further and get more uncompetitive. The benefit perhaps wont be from holding the US debt(because of inflation down the road), but from suppressing their curreny and fostering their exports. The yen gets fast in really dangerous territory for japanese exports and i would expect them(central bank) to start buying US dollars/$ denominated assets in big quantities soon. Hopefully it doesnt get to a beggar your neighbor showdown. Inflation with 4-8% per year will be the way out of the debt for the countries in 1-3 years for a decade to reduce the debt load compared to GDP to more manageable levels after all the bailouts are payed for. Hopefully they can manage it this way without letting hyperinflation out of the box. I cant see other ways without BK to countries or utter destruction of economies as Island. US, Japan and core-Eurozone should be able to manage it this way, because they have/are reserve currencies and therefore deemed relative save to external currency shocks. Others as UK/Swiss/Russia/Brasil/.... could get in very dangerous waters soon. Especially UK and Swiss could be very vulnerable because of "minor" reserve currencies and if this gets tested/reversed external debts denomiated in other currencies could be hard to repay for their priavte companies/banks and their banks are to big for their countries to save and financials have a very big chunk of GDP compared to other countries. Its the same as Island but on a much grander scale. UK may get saved, but Swiss because of tax cheating doesnt have much good will around the world. China is a different beast and very hard to predict. From good management with minor damage to civil unrest everything is possible over there.