Comments on Fund My Mutual Fund: Bloomberg: Turmoil May make Americans Savers; Wors...

We're doomed whenever our creditors cut us offI do...

2008-10-22T15:29:00.000-04:00

We're doomed whenever our creditors cut us off

I don't know when, I assume at least 10 years because we are still too much of the world fabric but we are doing an excellent job of becoming more irrelevent by the minute. Just like 5% of the people use 25% of the world's energy we dominate world GDP but just in the past 5 years that has changed a lot.

Now, for the near term we will all go down together so the ratios might hold since for example Russia is kaput without oil at $80-$120. My worry there is they cause a war in their region to keep oil prices up - that is what desperate nations do.

Again, throw our Medicare obligations on top of what is already mind boggling debt in the mid to latter 2010s. When 4 of every 10 dollars is for Medicare will China have a choice but to let us go?

Good explanation....that makes the most sense. th...

2008-10-22T15:24:00.000-04:00

Good explanation....that makes the most sense. thank you very much!

I am actually quite happy about that because it buys me and everyone some more time.

So in theory when we're cut off the dollar collapses...but that can't really happen too soon because it would destroy the rest of the world in the short term...so it happens in several years when USA is less significant.

That thesis would mean USA recovers in 2-3 years....but as long as Asia subsidizes us, then it can happen...I thought that Asia would stop helping us, but now as you mentioned they can't, so we will accumulate more debt to get out of this. That makes sense.

so in 2020 and beyond we're doomed..interesting

One day those foreign banks will dump US dollars. ...

2008-10-22T13:07:00.000-04:00

One day those foreign banks will dump US dollars. The problem right now is what yuo see in the world today - the US has the world by its short hairs due to the fact we are like 25% of world GDP. So when we implode we take everyone with us. At some point in the future, whether it be 10,15, or 20 years our creditors will have strong enough internal economies where they can pull us off life support. That will cause the world to have serious problems but our GDP as a % of world GDP at that time will be far lower. We are so big now I don't think it's practical - it is almost like blackmail right now. People have to support us because we are so big. Keep in mind China, UK, and Japan have 50% of our debt. Japan and UK really cannot growth too much more, but China can. So we have to watch China - they hold our destiny. The UK is a mini US so they will hold reserves and Japan really can't grow too much more other than exports to China. But this is why we will do anything China asks us to do - just like our President goes to the Middle East begging for oil every 18 months. Our policies keep us in this situation.

The credit markets thawing are all relative. We are going from comatose to life support. It is going to take a long time to get back to where we were even in 2002-2003 in terms of credit so I don't expect velocity to pick up anytime soon unless we just push even more dollars down the throat of banks. I read yesterday that banks are looking to use the tax money to do acquisitions instead of lend. That's what happens when you have stupid policies that don't explicitly spell out you must lend this money.

as for the Euro some are speculating the Euro Zone might break apart - we shall see. Read up on Hungary and some other Eastern Euro countries - we might have multiple Icelands coming.

But it's all about time line - we can have both situations, just which comes first, which comes second, when does the first end, when does the second begin etc.

Ok that makes sense of course. Thanks!Sorry for a...

2008-10-22T12:38:00.000-04:00

Ok that makes sense of course. Thanks!

Sorry for any obvious flaws as I only have high school econ under my belt and the rest is self-learned but, to clarify what I meant, doesn't inflation directly related to the supply of money and its velocity
(something like Inflation= MS X V)?

In that case money supply is contracting now as is velocity (no lending, and consumers saving). But what I meant is not necessarily when growth returns, but when velocity picks up and credit markets thaw more...then we will see inflation like never before (ie: Jim Rogers calling for an inflation holocaust in 2-3 years)

The rest of my thesis for inflation/declining dollar was the potential for massive dumping of the US dollar by foreign central bankers as they have trillions in dollar reserves and if they fear losing money from investing them or devaluation they'd dump them. And also the bursting of our bond bubble (in my opinion bonds are the last bubble....bond prices are too high and do not discount the chances of US defaulting because we will never default (near term), instead we print, therefore the bonds should discount the inflation risk and sell off severely and take the dollar with it as everyone dumps treasuries (especially the bubblish 30 year bonds)

And the other was the potential for the Euro to be used as the world's reserve currency.

Those two potential events coupled with our money printing I would think would accelerate inflation.

It just makes sense for the dollar to tank...who would want to own a currency that represents an unproductive country (trade deficits) and a massively indebted nation that prints the dollars relentlessely. I would think as econ 101 indicates, the dollar would have to be devalued to the point that imports become so expensive that imports are decrease and exports increase to zero the current account deficit and restore the equilibrium...I would think that would be a prudent bet to count on...the dollar tanking to the point where our deficit is zeroed, and of course in the process consumers are decimated by rampant inflation.

First deflation, than inflation - in US. Other co...

2008-10-22T12:12:00.000-04:00

First deflation, than inflation - in US. Other countries are ok.

for example - in the stock market alone we just lost $4 trillion - so even if the Fed prints $4 trillion - you are just even. And that's not touching the real economy, just the stock market. Just imagine the lost housing value and lost wages as people get axed left and right.

In due time (maybe 2010+, or 2011+) we'll go to a high inflation scenario and I believe the 2010s era will be one of much higher inflation that will sap living standards.

The dollar befuddles me BUT if it is deflation it makes sense - less dollars circulating = each one is more valuable. So in theory we just eliminated 4 trillion dollars in the stock market alone - so that is 4 trillion less $1 bills running around the world. Hence each one left is a bit more worth something. Gold would also be acting better in an inflationary environment.

You wrote "as soon as growth returns the slightest bit"... the problem is that will be a long way off. It won't be in quarters - more likely 2010+. Once the global economy ex USA gets back into gear we'll start to see that inflationary spiral but like Japan they were in a 1 country deflation for a long time. We won't be as bad as Japan since our central bank is a beast at printing money but for a short period (1-2 years) we are Japan.

With that said, I just have a hard time buying the dollar even though its been the right thing to do. I think gold will begin its next run by next summer or fall if this timeline above is anywhere near correct.

Mark,What is you stance on this recession, will it...

2008-10-22T11:40:00.000-04:00

Mark,

What is you stance on this recession, will it be deflationary (or low inflation), or accelerating inflation.

I think the latter because we a pumping in so much liquidity now that as soon as economic growth returns the slightest bit, inflation will soar.

Because if we see inflation, then the savings will do nothing....because we'd have negative real interest rates so wealth would be destroyed by savings.

I was just wondering if you forecast high or low inflation and a stronger/weaker dollar....because I feel that makes a huge difference.

You're talking stock market; I'm talking real econ...

2008-10-22T11:03:00.000-04:00

You're talking stock market; I'm talking real economy. The stock market should rally towards the 2nd half of the recession meaning spring to summer 09 we should see some more beneficial action in the stock market while the economy continues to degrade.

Key comment is that it may make Americans savors, ...

2008-10-22T10:54:00.000-04:00

Key comment is that it may make Americans savors, but I have serious doubts that it will happen. This is truly 'sky is falling' kinda of stuff. With the market already hitting 45% declines, do you really think this market is going lower. If oh Roubini has his money in the stock market. Do as he does and not as he says?