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I can't see t...I tend to agree with On Margin.<br /><br />I can't see the Obama administartion opting for debt destcution, (which they should).<br /><br />The path of least resistance is to to reduce the real value of debt via inflation. The dollar is set for more devaluationAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-43063300904978815782009-06-16T12:25:59.275+03:002009-06-16T12:25:59.275+03:00@Thai: ... AND, if Obama taxes health insurance AN...@Thai: <i>... AND, if Obama taxes health insurance AND makes health reforms,....</i><br /><br />Cannot happen: Remember that Democrats always Embrace and Embellish the worst stupidity of the outgoing republican administration ;-) <br /><br />You see, Obama was too weak to break the bankster-oligarchs; having shown this to the world, he will not have more luck with the medical-insurance cronies!!<br /><br />Having failed yet again, Obama - to show the world that he is not a complete pussy (and divert attention away from the total lack of performance on USD-paper, including the USD itself) - he will run off and bomb someone like maybe North Korea ... <br /><br />I would still not buy gold though!fajensennoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-91264837376154574832009-06-16T05:46:00.255+03:002009-06-16T05:46:00.255+03:00... AND, if Obama taxes health insurance AND makes...... AND, if Obama taxes health insurance AND makes health reforms, all the dreams of the gold bugs will be swept away in one fell swoop (along with much of the earnings they have put into gold).<br /><br />Betting on the wims of policy people seems the worst of all possible bets as you literally have no idea what they will do in the end. <br /><br />You are playing a very dangerous bet indeed.Thaihttps://www.blogger.com/profile/00700253024420397221noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-31431505115016463662009-06-16T05:25:22.401+03:002009-06-16T05:25:22.401+03:00Mark my words. The notion that you can't have ...Mark my words. The notion that you can't have a hyper-inflation in a reserve currency is going to be proven to be absolute balderdash. The Chinese are quite prepared to take the hit on their U.S. sovereign debt holdings. To answer the question, The hyper-inflation would occur against anything that is seen as having real instrinsic value, food, land, gold, silver, (don't laugh) objet d'art.<br /><br />This is a confidence game my friends. And when, not if, that goes for good, it means that there will be far too few lenders to allow us to escape Weimarization.Edwardohttps://www.blogger.com/profile/03613197383283896190noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-52246457526655020912009-06-16T03:33:19.441+03:002009-06-16T03:33:19.441+03:00Nate:
"Theoretically, we could "inflate ...Nate:<br />"Theoretically, we could "inflate our way out of it" but in practice, I can't see it working without disastrous consequences. Perhaps if the bond markets were not a global thing...If it became clear that we were taking this road, the bond market would not be happy. Higher interest rates mean we need to issue more debt, which means we need more people to buy (unlikely), which means higher interest rates, which means more debt...you see the problem"<br />Right. But obviously this is not sustainable. At some point nobody will loan US any more money regardless of the interest rate. Would you loan a junkie $100 even if he promises you to pay you back $200 the next day? Only a fool would and eventually the world will run out of fools.<br />So at that point some very unpleasant decisions will be forced down our throat. Default or monetizing the debt. Those are the only 2 choices once we reach the end of the road we're currently on.yoskinoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-8903902283403957752009-06-14T20:28:58.378+03:002009-06-14T20:28:58.378+03:00MY thoughts on the market this week - http://chart...MY thoughts on the market this week - http://chartsandcoffee.blogspot.com/2009/06/sunday-night-coffee-61409.htmladminhttps://www.blogger.com/profile/14490221759728357211noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-62166766049004452332009-06-14T10:39:58.406+03:002009-06-14T10:39:58.406+03:00First off, hyperinflation (in the USA, that is) is...First off, hyperinflation (in the USA, that is) is not possible short of some massive unforeseen war (that we lose). Weimar style hyperinflation was caused by the fact that Weimar held debt in foreign currencies, not their own. All of our debt is in dollars. Hyperinflation does foreign holders of treasuries no good. What would the dollar inflate with respect to? There is no other reserve currency. Maybe in 50 years something else will crop up, but not right now.<br /><br />I maintain that the amount of money lost through housing deflation will far offset the amount of money "printed" for the banks. hello deflation. At best, we could have a balance between the two and get a really long lost decade.<br /><br />On Margin: Theoretically, we could "inflate our way out of it" but in practice, I can't see it working without disastrous consequences. Perhaps if the bond markets were not a global thing...If it became clear that we were taking this road, the bond market would not be happy. Higher interest rates mean we need to issue more debt, which means we need more people to buy (unlikely), which means higher interest rates, which means more debt...you see the problem.<br /><br />Treasuries are the last bubble. Housing was a HUGE bubble. Treasuries are the only asset class that could possibly "hide" the burst of the housing bubble. Besides, inflating anything else will screw over any type of recovery. Could you imagine what $5/gallon gas would do with 10% unemployment?<br /><br />Daniel in Paris: I don't think "illegitimate" is the right term. More like a pipe dream. I talk to far too many people who don't understand the basic economics of our budget (what else would you expect from a populous with too much debt?) and none seem to understand the gravity of the situation. We have run a massive defect for so long nobody seems to remember what the government was like and I fear so many services will need to be cut that no politician will have the balls to actually do it until it is too late.<br /><br />What's the saying? You can count on Americans to do the right thing after exhausting all other options? Sounds about right.Unknownhttps://www.blogger.com/profile/05710981551831039441noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-55951170313008210712009-06-14T05:37:37.737+03:002009-06-14T05:37:37.737+03:00I still don't see how wage inflation happens i...I still don't see how wage inflation happens in this inflationary cycle with 10% unemployment.Bazilynoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-49007797169416676002009-06-13T22:27:58.635+03:002009-06-13T22:27:58.635+03:00Has this possibility crossed anyone's thinking...Has this <a href="http://news.morningstar.com/articlenet/article.aspx?id=295293&pgid=rss#page=0&part=4" rel="nofollow">possibility</a> crossed anyone's thinking?:<br /><br />"...the banks’ free reserves at the Fed are just shy of $950 billion. This is off of a base measure of around $8 billion to $10 billion before August 2007. It’s a monster number. The Fed has created an awful lot of potential spending power. The money will show up as inflation when the banks withdraw it through the Fed and make loans, which would trigger the spending. I think the only way of avoiding it would be to pull a nationalization-style trick, not that I’m advocating it, but the Fed does think this way. They could say to the banks, “Remember that $950 billion that you had for your reserves? We’re now converting it into mandatory 10-year Treasuries, and that’s that.”Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-72618992793825913372009-06-13T17:07:05.957+03:002009-06-13T17:07:05.957+03:00Edwardo, you probably already read this but I thou...Edwardo, you probably already read <a href="http://zerohedge.blogspot.com/" rel="nofollow">this</a> but I thought I would pass it along in case you missed it.<br /><br />RegardsThaihttps://www.blogger.com/profile/00700253024420397221noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-25739605488596533112009-06-13T15:13:13.461+03:002009-06-13T15:13:13.461+03:00Good post. I have been sounding the same themes o...Good post. I have been sounding the same themes over at my blog. This ain't gonna end well, but the critical question is how it won't end well, and when.David Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-33633852848626032172009-06-13T11:31:05.794+03:002009-06-13T11:31:05.794+03:00The main point is that hyper-inflation could come ...<i>The main point is that hyper-inflation could come as a result of a runaway deflation where confidence disintegrates to a critical degree in the nation's ability to raise revenue to pay for its already bonded obligations.<br /><br />How it happens is that bond markets in all time durations are shunned causing the government to have to engage in pure unsterilized printing operations.</i><br /><br />Austrian economists will argue, along with Von Mises, that once a certain level of debt is reached, only hyperinflation and deflation can occur.<br /><br />I'll add possibly in sequences. Unmanageable ones. That's in view of their most articulate writings that I'll buy into the above. <br /><br />Not even paying the time to read again what Greenspan and Bernanke wrote on their so-called "handling" of interest rates. <br /><br />Why are inconsistent economists with systemic failure as a background the joystick in hand whilst Volcker is left in the background? We all know the answer. The country would not like the cure. But there no other one.marin belge™https://www.blogger.com/profile/10736724522590410901noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-52280354888320136662009-06-12T21:11:05.594+03:002009-06-12T21:11:05.594+03:00Sorry for my last post, what with its poor punctua...Sorry for my last post, what with its poor punctuation and various other problems. <br /><br />The main point is that hyper-inflation could come as a result of a runaway deflation where confidence disintegrates to a critical degree in the nation's ability to raise revenue to pay for its already bonded obligations. <br /><br />How it happens is that bond markets in all time durations are shunned causing the government to have to engage in pure unsterilized printing operations.Edwardohttps://www.blogger.com/profile/03613197383283896190noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-87155502835023340422009-06-12T20:59:32.027+03:002009-06-12T20:59:32.027+03:00Yes, indeed, the asset deflation that we have seen...Yes, indeed, the asset deflation that we have seen to date in shares and housing/real estate dwarfs anything that has been created on the inflation front. If the game were called today, deflation would win the deflation/inflation contest in a rout. All this despite the authorities Quantitative Easing (monetization) experiments. <br /><br />Clearly the QE gambit has failed as long rates, rather than staying low, have instead crept steadily crept, endangering any chance of putting a floor under R.E. which is essential to the banks balance sheets as all those credit derivatives are backed by real estate.<br /><br />So, what now? Will the authorities, realizing that they are fighting a losing game, what with their attempts at keeping rates low, backfiring, reverse course. NO!<br /><br />Despite the thesis that folks like Karl Denninger put forward, where yesterday's buying of the 30 year is some sort of harbinger that The Fed is about to reverse course on its QE, sopping up liquidity, and allow liquidation to occur, I would argue that <br />draining liquidity has enormous political consequence that The Fed, namely Ben Bernanke, will not want to face.<br /><br />To wit:<br /><br />How do you justify reversing course when you have acknowledged countless times that the present economic downturn is still in force? If one's efforts via QE are literally causing credit to become more expensive anyway, which is deflationary, then why bother to be the bad guy who takes the punch bowl away. Let it be seen that you tried everything you could and that things simply did not work out. <br /><br />What I am trying to say is deflation is coming because if the Fed continues their QE, rates go higher driving a stake through the stock market, business activity and last but not least R.E.<br /><br />If the Fed says no more QE let things go we will get the same as the prop is taken away.<br /><br />Caveat: How do we get hyper-inflation out of this?<br /><br />We get it because our currency and bond market are shunned as investors realize that the entire nation is becoming California and we have no money to make good on bonded obligations.<br /><br />The other way our bond market and currency collapse is because of the wild card factor which involves the revelation of massive fraud and manipulation at the highest levels of government.<br /><br />At that point, when it is discovered, once and for all, that for example, the Fed is doing all sorts of in violation of its mandate... <br /><br />http://zerohedge.blogspot.com/2009/06/zero-hedge-exclusive-is-state-street.html<br /><br />we have capital flight. At that point a Weimar event becomes more than possible, it becomes likely.<br />I would further posit, that such an evolution could happen far more quickly than one might imagine.Edwardohttps://www.blogger.com/profile/03613197383283896190noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-37450070454047019792009-06-12T19:54:37.077+03:002009-06-12T19:54:37.077+03:00Building on Anon 6/11 10:30 Do we got China by the...Building on Anon 6/11 10:30 Do we got China by the nads or they have us? <br /><br />What if they decide to increase wages and simultaneously invoke drastic protectionism policies. Then they would make everything and be able to buy everything ala the post war U.S.Thee earl of obviousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-78130889733228739662009-06-12T18:29:18.818+03:002009-06-12T18:29:18.818+03:00"Euro-dollars in the 50ties and 60ties?"...<i>"Euro-dollars in the 50ties and 60ties?"</i><br /><br />Yes they built up consistently during that period on persistent and intense external US deficits. The associated dollar <i>seigneurage</i> triggered both an industrial boom in Europe - thanks America - and a significant part of local inflation. <br /><br />This inflation remained under control and noone would argue now that the overall effect of the initial Brettons Woods system was not positive.<br /><br />But the "fiat money as a reserve" system found its limits for the first time then during the 70s. Volcker made the trick. The US industry found a new youth.<br /><br />But the problem is now up again on a much larger and trickier scale with China and pegging accross Asia to make it worse. <br /><br />A l'aide Monsieur Triffin!Daniel in Parisnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-55506234512442727802009-06-12T14:03:27.215+03:002009-06-12T14:03:27.215+03:00"The so-called wage-price loop of the 50-and-...<i>"The so-called wage-price loop of the 50-and-60 was not the main feeder for the massive European inflation. Euro-dollars were in the driver seat. As much as unions."</i><br /><br />Euro-dollars in the 50ties and 60ties?Big67noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-40212941422761175602009-06-12T12:31:09.352+03:002009-06-12T12:31:09.352+03:00policy makers can induce wage inflation? Via prote...<i>policy makers can induce wage inflation? Via protectionism perhaps?</i><br /><br />No way than you can induce wage inflation of any kind in the current monetary <i>statu quo</i>! The peggings and monetary manipulations have to stop or we reverse to some fixed decent exchange system. <br /><br />As long as we continue this way, industry will migrate to Asia. What sensible person would propose their children to work in anything relating to industry - aka transferable goods or services - here? <br /><br /><b>This problem is not about US debts. Debts are now spread all around the world now.</b> Including in countries that no debt tradition aka Southern Europe.<br /><br />Do not forget to include in the list the crazy level of debt currently funding the superb level of industrial over-capacity in China.<br /><br />Of course, US and UK debts belong to the premier league since they boasted reserve-level fiat currencies and add a capitalist historica base... <br /><br />This problem is first and foremost a monetary one. Debt is an outcome of the monetary system in place. Not the opposite even if there a feedback loop.<br /><br />Currencies are an even more crucial infrastructure to economics than roads and banks... Their manipulation is even worse.<br /><br />The so-called wage-price loop of the 50-and-60 was not the main feeder for the massive European inflation. Euro-dollars were in the driver seat. As much as unions.Daniel in Parisnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-1076322258358848212009-06-12T05:30:10.991+03:002009-06-12T05:30:10.991+03:00perhaps part of the problem is resulting from glob...perhaps part of the problem is resulting from globalization that brought about wage stagnation in the developed countries. While wages stagnate, the desire to keep up with the jones persists, and the solution is to increase debt.<br /><br />Would there be a chance that policy makers can induce wage inflation? Via protectionism perhaps?Anonymousnoreply@blogger.com