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

To: axial who wrote (20226)	5/7/2009 8:56:54 AM
From: Paul Kern	Read Replies (2) \| Respond to of 71403

Does Uncle Ben have the balls to take away the punchbowl?

To: axial who wrote (20226)	5/9/2009 7:39:55 AM
From: axial	1 Recommendation Respond to of 71403

Re: "I just don't see how the US can be competitive at current valuations, never mind pay off massive debt. The standard of living isn't being maintained by earning, and outflows still exceed inflows. If the standard of living IS matched to earning then the standard of living must drop. If it drops, that's a deflationary scenario: falling wages, asset values, while the Fed decreases liquidity." --- From: beyondsg.typepad.com "Economic Repricing Let me first talk about economic repricing. Many bubbles have burst in the current crisis starting with sub-prime properties in the US. All over the world, asset prices are plummeting. In the last one year, tens of trillions of dollars have been wiped out. How much further this painful process will continue, no one can be sure. Many months ago, Alan Greenspan, in his usual measured way, peering into the hole said he saw a bottom forming in the fall of asset prices; it turned out to be the darkness of an abyss very few knew existed. That bottom is only reached when assets are sufficiently repriced downwards. Public policies can help or hinder this process. Unfortunately, many stimulus packages being proposed will make the adjustment more difficult. For example, bailing out inefficient automobile companies may end up prolonging the pain of restructuring at tremendous public expense. The repricing of human beings will be even more traumatic. With globalisation, we have in effect one marketplace for human labour in the world. Directly or indirectly, the wages and salaries of Americans, Europeans and Japanese are being held down by billions of Asians and Africans prepared to work for much less. China and India alone are graduating more scientists and engineers every year than all the developed countries combined. Now, while it is true that trade is a positive sum game, the benefits of trade are never equally distributed. We can therefore expect protectionist pressures to grow in many countries. Governments will try to protect jobs often at long-term cost to their economies. It is wrong to think that we can force our way out of a recession. Beyond a point, the stress will be taken on exchange rates. If governments try to prevent the repricing of assets and human beings, international markets will force the adjustment on us. A country that is over-leveraged living beyond its means will itself be repriced through its currency. Its currency will be devalued, forcing lower living standards on all its citizens. The world is in profound imbalance today. All the G7 countries are in recession. The West is consuming too much and saving too little while the East is saving too much and consuming too little. China, India and others need to consume much more of what they produce but they are unable to take up the present slack in global demand because their GDPs are still too small. In 10-20 years, they may be able to but certainly not in the next few years. In the meantime, the global economy may suffer a prolonged recession, a global Keynesian paradox of thrift. --- Re: "Nobody knows" "In an editorial last December, the Financial Times commented that the US Federal Reserve was flying blind. But, in fact, all governments are flying with poor vision. Markets are volatile precisely because no one knows for sure which policy responses will work. I remember an old family doctor once explaining how every disease must run its course. In treating an illness, he said, one works with its progression. Attempting to short-cut the process may worsen the underlying condition. While emergency action may be needed and symptoms can be ameliorated, the body must be healed from within after which its immunological status changes. The Austrian economist Joseph Schumpeter understood the importance of creative destruction. The end of an economic cycle does not return the economy to where it was at the beginning. During the downturn, firms go bankrupt, people lose jobs, institutions are revamped, governments may be changed. And in the process, resources are reallocated and the old gives way to the new. Charles Darwin, whose 200th birth anniversary we mark this year, understood all that. Life is a struggle with old forms giving way to new forms. And human society is part of this struggle. The question we ask ourselves is, what is the new reality that is struggling to emerge from the old? History is not pre-determined. There is, at any point in time, a number of possible futures, each, as it were, a state of partial equilibrium. And every crisis is a discontinuity from one partial equilibrium state to another within what scenario analysts call a cone of possibilities. Well, whatever trajectory history takes within that cone of possibilities in the coming years, there will be a great repricing of assets, of factors of production, of countries, of ideas." Jim