pimpineasy Wrote: ------------------------------------------------------- > Bchad did u mean we need to Devalue the usd and > inflation is the least bad way? May be the only way. Reducing govt spending and debt would reduce aggregate demand, whereas devaluing the dollar would at least be more friendly to exporters and stimulate aggregate demand.
http://www.reuters.com/article/2011/08/06/us-eurozone-idUSTRE7712HB20110806 What a joke. The US needs to “ensure the safety of China’s dollar assets”. China for decades has kept its currency undervalued relative to the dollar by purchasing trillions worth of Treasuries, and now they are worried about the value of that portfolio and blaming the US for something (high external debt/deficits) that is quite obviously a direct result of their interventionist policies. You would think that if they were concerned about US creditworthiness then they would start selling some of the debt right? By all means please go ahead and do so instead of complaining about it incessantly. If they do then kiss China’s export growth goodbye and bring on US gobal competitiveness. Less job drain from here and let them actually start consuming their own cooking. More seriously, a rapid USD devaluation would be somewhat disruptive given existing structures and institutions and require a lot of quick adjustment by businesses. But spread out over years it would not be a problem. Count on continued complaining out of China for political appearance with zero action or accountability for their side of the balance sheet problem.
@pimp. Yes, pretty much. I don’t like it that much, but I think the other options are worse. @Palantir, the SS Trust is owed by the government to itself; it’s not actually owned by SS recipients. So although it would feel like a default to retirees, it would not be a default to any US Treasuy holder. It’s a bit like telling your spouse that they’re not going to get that nice big thing you’ve been promising them for years because there are all these other bills you have to pay and there’s not enough left over. Your spouse is going to think you’re an SOB, but the people who lent you money are still getting paid. So, no default; but that doesn’t necessarily mean no consequences.
I see, fair enough.
Wow the more I think about it is the more I find myself saying that ss n Medicare will have to go bust n we should renegotiate now rather than later while we have options on restructuring othe us gov payment promise to senior citizen n the poor since I believe that the figures simply don’t balance.
Palantir Wrote: ------------------------------------------------------- > pimpineasy Wrote: > -------------------------------------------------- > ----- > > Bchad did u mean we need to Devalue the usd and > > inflation is the least bad way? > > > May be the only way. Reducing govt spending and > debt would reduce aggregate demand, whereas > devaluing the dollar would at least be more > friendly to exporters and stimulate aggregate > deman So much for globalization. We are now advocating beggar thy neighbor economic growth policy.?
bchadwick Wrote: ------------------------------------------------------- > Fed can’t keep buying forever?? Why not? > > If China stops buying our Treasurys, the Fed can > step in and fill the gap. Sure, the dollar will > get slammed and anything imported will become > expensive, but guess what… the US worker will > suddenly become globally competitive. And we have > a large enough country with a > still-basically-functioning infrastructure that we > actually can build stuff here. > > The main worry would be if our currency collapses, > maybe foreigners will buy up all our companies and > take control of them, which would be bad for any > intellectual property developed by Americans. But > those companies would still be interested to hire > US workers, because we are now cheap labor. > > And housing prices would rise due to inflation, > and that would mean that homes could be sold and > mortgages paid off. The labor force would be > mobile again, and we would not be stuck > deleveraging. > > So, yes, basically we need to revalue the USD, and > inflation is the least-bad way to do it. > > Who gets screwed? Well, people who hold bonds. > Who are they? Well, people that lent. The people > who lent without doing their due diligence. > > Retirees also get screwed, if they are mostly in > fixed income, because their stuff won’t keep up > with inflation. Yes, that is sad, but those guys > got to live it up through the boom years and party > like there’s no tomorrow and vote for entitlement > after entitlement and tax cut after tax cut, so I > don’t think we should cry for them too much. It’s > not like the boomer generation was so selfless > that they deserve to have the rest of the country > pay up so that they can live out their golden > years as self-absorbedly as they did the rest of > their lives. And if they did turn out to be > selfless enough to give a cr*p about their kids, > then they should be happy that their kids might > have a job and a future and even be able to help > them in their old age. > > Personally, I suspect that the reason that the > country is pursuing austerity and contraction and > ongoing depression with such dedication is because > the people who are most politically organized are > the bondholders. And they don’t really care if > there’s a Great Depression #2, because it will > mean that their coupon payments will go farther, > even if it means that everyone else is out of work > for a decade. Chad, What range ( numeric values) of devaluation are you expecting ( to make the US worker cheap labor, and house prices a good investment again) ?
Well, I would advocate doing it until there are noticeable improvements in jobs and housing, but if I had to put a number on it, a 15-20% devaluation might be enough to get housing going again, and having the housing market clear would allow consumption to go up and help provide demand for business and then employment. The challenge is that mortgage rates would go up in this scenario, so rising rates would push housing down by crushing demand. Whats remarkable about the mortgage crisis is how bondholders, and particularly bank bondholders, really haven’t been forced to take a haircut. These lenders clearly didn’t do their due diligence, but the fed made some enormous proportion of these mortgage securities whole, and use the taxpayer to make sure that bank bondholders didn’t have to take a haircut. It just seems so antithetical to the very principles that bankers hold dear about accountability in the capitalist system. And this makes me ask “why are bondholders so special, that they need to be protected above all others, even at the expense of the taxpayer and US credibility.” My best guess is twofold: 1) there are a ton of pension obligations that no one wants to admit in a public forum are invested in these things and now dramatically underfunded, and 2) the people who receive lots of bond income are better politically organized, because a) they are AARP types (AARP is an extremely effective political organization) and b) younger people who hold a lot of bonds tend to be on the wealthier, more connected parts of the social spectrum (how many Joe Schmoes come to you and talk about this awesome yield they got on a bond, unless they are close to retirement or financially sophisticated). So this is why the bondholders are so precious. So now these mortgage securities are sitting on the public balance sheet and probably not worth what they’ve been marked at since forever. So I don’t think we are getting out of this until our currency reflects that level of discount, and perhaps a bit more. As for globalization, I hear what you’re saying, but China has been running “beggar thy US neighbor” policies with an undervalued currency for close to two decades, and it is not unrelated to why we have accumulated so much debt, both public and private. This would be an event roughly similar to Nixon in 1971 saying that we are going off of a gold backed currency (though not quite as damaging as that was).
Hmmmm china has 2billion people dependent on GDP growth rates remaining where there are. Surely they wont take kindly to us devaluing the promissory notes they are holding? Do we have the cojones?
That’s why inflation rather than outright revaluation is likely a better way to do it.
bchadwick Wrote: ------------------------------------------------------- > That’s why inflation rather than outright > revaluation is likely a better way to do it. Lol what a thinly veiled disguise. What I don’t get is where is the inflation? After qe1 n qe2 has it not worked it’s way into the numbers yet. It sure doesn’t feel like an inflationary environment. Ask any bond trader. They are making a killing right now. So where is it.
QE3? QE4? Negotiated Default on Federal Reserve Debt?
F*ck! I’m moving to Canada!
pimpineasy Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > That’s why inflation rather than outright > > revaluation is likely a better way to do it. > > > Lol what a thinly veiled disguise. What I don’t > get is where is the inflation? After qe1 n qe2 > has it not worked it’s way into the numbers yet. > It sure doesn’t feel like an inflationary > environment. Ask any bond trader. They are making > a killing right now. So where is it. No demand. Inflation is too much money chasing too few resources. You can lower interest rates and swap dollars for bonds all you want but if everyone wants to save and not spend then it is hard for excessive demand to be a problem.
Zesty Wrote: ------------------------------------------------------- > F*ck! I’m moving to Canada! Hate to say it, but Canada’s economy is pretty closely tied to the US, export industries notwithstanding. If the US economy goes into deep recession or depression, Canada will follow. It’s buffered a bit by the export industries in timber and energy, and what’s really good about Canada is that the banking system is intact and housing is not the mess that it is in the US.
Zesty Wrote: ------------------------------------------------------- > F*ck! I’m moving to Canada! No way, stay there, we don’t want you over here, you might be contagious
@Miss*Yiota, I’m coming there to take your job. @bchadwick, keep telling yourself that. They thought the Titanic was unsinkable as well.
TSX got hit worse this week. Unfortunately Canada’s economy is metals, telecomm, banks and energy. TSX will get murdered this week worse than the S&P. The CAD is in a long-term bull market, but will get crushed as the USD gets bought all way down to a .98 level before rising again. Bottomline if the USA don’t solve their shit, Canada will suffer right away we may come out of a recession faster but we sure will join the USA right away.
adehbone Wrote: ------------------------------------------------------- > TSX got hit worse this week. Unfortunately > Canada’s economy is metals, telecomm, banks and > energy. TSX will get murdered this week worse than > the S&P. > > The CAD is in a long-term bull market, but will > get crushed as the USD gets bought all way down to > a .98 level before rising again. > > Bottomline if the USA don’t solve their shit, > Canada will suffer right away we may come out of a > recession faster but we sure will join the USA > right away. You’re joking right? The CAD will own the USD over the long haul. Canada isn’t facing the same debt crisis we are.
bchadwick Wrote: ------------------------------------------------------- > Zesty Wrote: > -------------------------------------------------- > ----- > > F*ck! I’m moving to Canada! > > > Hate to say it, but Canada’s economy is pretty > closely tied to the US, export industries > notwithstanding. If the US economy goes into deep > recession or depression, Canada will follow. > > It’s buffered a bit by the export industries in > timber and energy, and what’s really good about > Canada is that the banking system is intact and > housing is not the mess that it is in the US. The CAD/USD rate will widen over time. As will most currencies against the USD.