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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (91495)	6/14/2012 11:18:52 AM
From: Hawkmoon	Read Replies (2) \| Respond to of 217648

Maybe I'm incorrect, but the prevailing theory is that debt increases the amount of money in the system (fractional reserve). This increases the supply of money. But debt default and repayment decreases the supply of money, shifting the demand curve. And as people sell assets, including commodities, they convert to cash.. increasing the demand for cash. Now.. if people in Europe increase their sale of Euro denominated assets, as well as the Euro, it's going to continue placing upward pressure on the USD due to capital flight. Effectively when people purchase commodities priced in USD, they need to sell them and re-convert to USD.. THEN they can sell those dollars to convert them into some other asset, and/or currency. So when I look at the capital flight in Europe from the periphery nations into Swiss and German banks and currencies, I see it's just a matter of time before they sell Euros and buy USD as the commodity bubble unravels and speculators go to cash. The Fed can attempt to fight this trend as much as they want, but the European economy is bigger than the US and as it unravels, and the status of the Euro comes increasingly into question, I can only see the USD attempting to return to at least the May, 2010 highs (post flash crash and prior to QE1), if not making even greater highs in the midst of the oncoming panic. And having the Fed continue operation twist, selling short term bonds and buying long bonds is going to require the issuance of huge quantities of those short term bonds, and then buying huge quantities of the long term bonds.. Both of which will severely impact the equity markets.. I certainly cannot foresee the US Gov't increasing deficit spending, given the current issue of deficit reduction that's on the table. It would require issuing huge quantities of debt to give that capital flight from Europe a place to be parked. So it's quite possible that the USD, Gold, and Silver, may all advance in tandem. But I think the USD will be first to rise until rates are effectively almost negative.. Then Gold and Silver may follow when commodities have collapsed to normal supply and demand levels (minus financial manipulation). But I think the biggest reason the USD will increase is debt destruction, thereby limiting the amount of cash available in the system. Credit crunches create demand for cash, and places to park it. That's why I believe Obama's treasury issued so much additional government debt.. To provide a place to park that excess cash being hoarded, as well as printed by the Fed. The Fed took toxic assets as collateral, and then loaned out money at 1/4%. The banks then parked it in higher yielding and safer treasuries. But I think that supply of treasuries is now going to be limited by legislative wrangling over the national debt. That's my current theory, but am open to other perspectives. Hawk