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

To: Little Joe who wrote (109233)	10/18/2010 7:47:54 PM
From: GST	3 Recommendations Read Replies (1) \| Respond to of 110194

<Somebody pays the interest on that debt> The interest is simply added to the debt -- but you must understand, this is not just government debt. It is the entire current account deficit. When we talk about 'more debt', and you wonder how that is possible if 'we' (meaning guys like you and me), cannot or will not borrow more money to buy things, this is entirely besides the point. Look in your wallet. It has plastic and paper. You manage your bank account, but you do not manage the account that determines what that dollar in your wallet will buy -- that is the US current account. The current account is where the issuing of new debt comes into play. When you see a trillion dollars in treasuries being sold by Washington on the one hand and then a trillion dollars in treasuries being bought by the Fed on the other hand, this is not about lending you money in any direct sense. It is about paying the interest on our international accounts while creating the illusion that we, as a nation, still have the credit wherewithall to afford to buy more stuff. This process of printing is like water eroding the foundations of our currency -- it is not a 'maybe' proposition. The incredible shrinking purchasing power of the dollar is our reward for the current account deficit -- and there is nothing anybody has suggested here or elsewhere that will do much to even slow, much less stop, the fall of the dollar. Only the speed and depth of its descent is open to debate. The extent of the imbalances in our finances is so overwhelming that it is nearly impossible to have a serious conversation about rebalancing our position -- not that we should not try. But try or not, it is too late to save the dollar from a really serious purchasing power bloodbath -- the very opposite of deflation.

To: Little Joe who wrote (109233)	10/18/2010 7:52:38 PM
From: benwood	1 Recommendation Read Replies (1) \| Respond to of 110194

You are describing the end game. The ZIRP at the low end at least may be permanent because of the dynamic you describe. This is exactly how QE2 leads to QE20 etc. We are already trapped by the debt into permanent money printing, ala Zimbabwe. If confidence is lost in the dollar, the end game will be rammed down our throats. Historically speaking, one will not have time to get out -- it will be an epic dislocation. I no longer thing of "if" but "when." Oh, there is still a way out w/o currency collapse -- cut spending by 40% or so starting tomorrow. Ain't gonna happen w/o social explosions and/or a military coup.