Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

[gugion]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

I really enjoy this interview-format and appreciate the more detailed answers and unique questions. In the standard format, I find myself coming up with questions I'd like to ask while reading, but may not be answered in the article. In this format, the "interviewer" has follow-up questions similar to those I come up with. Excellent article. Honestly, I would be lost without Itulip. Thank you for all you guys do.

[c1ue]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

5) They print a lot of money and don't persuade anyone of anything but let the world come to them until they puke and then everyone loses, but the debts are wiped clean and we get a new multipolar currency regime that favors all of the big players, including China likely, and yet still sucks the blood out of third world countries. In the meantime all of the little people pray to god that no one does anything too stupid.

Wishful thinking doesn't make it so.

Certainly there is little evidence that the rest of the world is coming to the US to buy more crap dollar bonds... More like Central Bank of Zimbabwe style fiscal management.

http://online.wsj.com/article/SB1253...googlenews_wsj


Quote:

In the second quarter, the most recent for which data is available, the Fed bought $164 billion out of the $339 billion in net new Treasurys sold. In the mortgage-backed debt markets, the Fed has been buying upward of 80% of the bonds issued by agencies such as Freddie Mac and Fannie Mae. Net issuance of fixed-income securities in the U.S. after the Fed's purchases is likely to have fallen by 25% in 2009 from last year to $843 billion, according to Barclays Capital estimates.

[Uncle Jack]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Hello. I haven't chimed in here in quite a long time, mostly lurking, but I read EJ's post and then today I saw this:

http://edsworld.wordpress.com/2009/0...-farm-storage/

Farmers are holding on to crops where possible awaiting the magic bus of inflation to show up. Not that I'm disputing what EJ has laid out here in this argument (fine job, too, by the way), but I have a distinct feeling that the "ka" phase is still ongoing and may be for some time.

Regards,
Uncle Jack

[Slimprofits]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

True, but it’s important to remember that our economic relationship with Japan has been difficult since at least the Kennedy administration.

EJ are you familiar with this piece from George Washington University's National Security Archive?

A SECONDARY AFFAIR: AMERICAN ECONOMIC FOREIGN POLICY AND JAPAN, 1952-1968, Working Paper No. 9, Michael A. Barnhart, SUNY-Stony Brook

http://www.gwu.edu/~nsarchiv/japan/barnhartwp.html

[Jay]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Printed dollars WON'T work for these future payments unless the counterparties are willing to accept them.

I frankly cannot understand how this is an 'advantage'.

There are two issues here. The first is whether the US is good for its past debts. It is not and will pay them back with a greatly devalued dollar. They will then thank the world for an era of insane seigniorage with a big hairy moon.

The second is what becomes of the dollar as the world currency. I think we both agree, as does most of the world, that this currency era is closing. The real issue we are talking about is who is going to hold the most power in talks when a new currency is created. Your position, as best I can tell, is that the US is stuck not only because it owes huge past debts, but because it also, and probably more importantly, has continuing vast funding needs that can only be met with foreign capital injections. These injections are likely to stop at some point forcing the US to go cold turkey, which would be a pretty cold turkey indeed, or very hot depending on your view, but a shitty tasting turkey none-the-less. Your viewpoint is obviously more refined than that short synopsis.

My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

As things follow this path, the US will continue it's seigniorage and it will likely get worse. Everyone knows it and hates it but it's the only safe thing to do. There hopefully will be a slow unwind under continued dollar mastery until the final pop. Otherwise, nastiness. I actually wouldn't be surprised if at some point most of the world currencies engage in QE together as eventually it may become impossible to issue more debt. All of the options unfortunately leave most of the world destitute except those in power.

Or will you argue that the TARP, the stimulus package (I), the big bankster bailout, the escalation of military activities in Afghanistan, and so forth are signs of a mature and measured US policy response?

Most of the players are greedy, fearful, power hungry monsters.

[raja]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

I learned from a professional proof reader to read the copy backwards, sentence by sentence, from the end to the beginning. Thanks for the print and read trick!

I published a small magazine for 11 years -- 5000 circulation bimonthly, subscription and retail, mostly sold in health food stores and some of the big chains like Borders.

I did all the writing. In addition to using a grammar and spell checker, I used a text-reader program to read back text from the screen. I found that I could hear errors that I didn't catch visually. Also, after doing all that writing in a short period of time, it was good to rest my eyes and just listen. I speeded up the reader a bit so it wouldn't take long to listen to it all.

Regarding EJs typos, sometimes I have trouble understanding the meaning of the sentence in which the typo occurs.
If EJ used a screen reader to read back his writing, he would catch these errors, and it would take very little additional time . . . .

Here's a little text-reader program for $50: http://www.readplease.com/

[mooncliff]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Great idea!

In Mac OSX, the read aloud feature is included. You select the text you want read aloud, and you can vary the speed.

Also, as a further note about MS Word, sometimes it underlines a word in green, meaning there seems to be some kind of grammar problem, but the word that is underlined may not be the problem. The problem may be elsewhere in the sentence.

[ThePythonicCow]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

I used a text-reader program to read back text from the screen. I found that I could hear errors that I didn't catch visually.

Cool idea, raja.

I too occasionally find EJ's prouncements mystifying due to such infelicitous phrases. A text-reader might help EJ catch these, which would be goodness. The other punctuation and detail errors just add a little bit of "authentic home cooked flavoring" to his sumptuous seven course meals and are hardly worth fussing over for the present audience.

[BrianL]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Pythonic needs more Python.

"FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...".count("F")
>>> 6

;)

[ThePythonicCow]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Pythonic needs more Python.

Yup, quite true.

Anyone out there want to hire a budding Python programmer?

I learned classic Unix shell commands (awk, sed, grep, tr, ed, wc, ...) back in the 1970's at Bell Labs, and have 30 years of very active experience in them. I compose such command lines as easily as I compose English sentences.

My Python experience is far less, I'm afraid.

[Chris Coles]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

There are two issues here. The first is whether the US is good for its past debts. It is not and will pay them back with a greatly devalued dollar. They will then thank the world for an era of insane seigniorage with a big hairy moon.

The second is what becomes of the dollar as the world currency. I think we both agree, as does most of the world, that this currency era is closing. The real issue we are talking about is who is going to hold the most power in talks when a new currency is created. Your position, as best I can tell, is that the US is stuck not only because it owes huge past debts, but because it also, and probably more importantly, has continuing vast funding needs that can only be met with foreign capital injections. These injections are likely to stop at some point forcing the US to go cold turkey, which would be a pretty cold turkey indeed, or very hot depending on your view, but a shitty tasting turkey none-the-less. Your viewpoint is obviously more refined than that short synopsis.

My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

As things follow this path, the US will continue it's seigniorage and it will likely get worse. Everyone knows it and hates it but it's the only safe thing to do. There hopefully will be a slow unwind under continued dollar mastery until the final pop. Otherwise, nastiness. I actually wouldn't be surprised if at some point most of the world currencies engage in QE together as eventually it may become impossible to issue more debt. All of the options unfortunately leave most of the world destitute except those in power.

Most of the players are greedy, fearful, power hungry monsters.

I could not more profoundly disagree with this opinion. With the greatest of respects Jay, you have missed two very important points. 1. The US does not even have enough troops spare for Afghanistan, let alone take on the whole planet. 2. Which neatly brings me to the crux of the matter; we are not debating which individual nation is going to be in the firing line because it is very likely that every other nation is fed up to the back teeth with the arrogance of the US. In which case, you are suggesting that the US is about to go to war with the rest of the entire planet..... Yet, it does not have the troops to cover its adventure in Afghanistan.

Those two points neatly bring me to the next stage of this "affair" in that what is most likely to occur is that instead of one nation stepping into the firing line, they all will, to one extent or another, slowly at first until they all realise that, what you suggest might happen; is in fact bluster.... after which, I would give the matter perhaps another year or so to completely unwind. If I were the US I would learn, very quickly indeed; to tread VERY lightly from now onwards.

[c1ue]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

Fair enough. It is clear that the substance of your belief is that the US can compel the rest of the world to toe the 'subsidize the US' or 'Global savings glut' line, whereas my view is that it is impossible to compel other nations to continue to give you stuff for free, much less trade amongst each other with your currency (hence subsidize you) if you are devaluing it.

Invading sounds nice, but invasions don't lead to more money for the US. Last I looked Iraq is still costing the US billions per month - even discounting the initial 'startup' cost.

http://usgovinfo.about.com/library/w...raqwarcost.htm

Summary of Iraq War Cost Estimates

CBO estimated the following costs for an Iraq war:

• Initial deployment of troops: $9 billion to $13 billion
• Conducting the war: $6 billion to $9 billion per month
• Returning forces to US: $5 billion to $7 billion
• Temporary occupation of Iraq: $1 billion to $4 billion per month

Afghanistan adds a similar monthly cost as Iraq's occupation. Of course you clearly also don't subscribe to Dr. Michael Hudson's analysis that US 'War on Terror' campaigns in Iraq and Afghanistan have been financed to date by foreign lending, and that foreigners failing to lend will in turn force hard budgetary reconsideration of US military expenditures.

Lastly you're still not understanding what I'm saying. The other nations aren't destroying the dollar - it is the US itself doing so.

All the other nations need to do is stay away and let financial gravity take its course.

Your assertion that other nations are trying to prop up the dollar - please show some evidence of this.

1) FDI flows are far below US funding needs
2) Dollar prices of commodities continue at high levels vs. 3 years ago
3) Trade levels between the US and ROW are down year on year both import and export

Where is the furious propping up of the dollar you speak of?

China pegging the RMB undervalued vs. the dollar is hardly a prop for the dollar - more like a remora.

[Jay]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

1. The US does not even have enough troops spare for Afghanistan, let alone take on the whole planet. 2. Which neatly brings me to the crux of the matter; we are not debating which individual nation is going to be in the firing line because it is very likely that every other nation is fed up to the back teeth with the arrogance of the US.

Point 1.) Notice I said an invasion is the last thing they would do.

Point 2.) Agree everone is fed up, I am fed up too, I just think there are plenty of things the US can do that they are wary of.

[Jay]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Invading sounds nice, but invasions don't lead to more money for the US.

Again, invasion is the last thing they would do. You and Coles seem to think there are no alternatives in the middle that could scare the bejesus out of other countries. I don't feel that way.

Lastly you're still not understanding what I'm saying. The other nations aren't destroying the dollar - it is the US itself doing so.

All the other nations need to do is stay away and let financial gravity take its course.

Agreed that the US is weakening the dollar with its policies, but there has been no crash yet. I realize what the flows have been and that China's purchases have slid down the yield curve. But there has been no crash. If you are correct, we will have a unilateral crash because no one buys the enormous debt. Not only that, but that crash should happen soon. I'm not convinced that facing the option of a disorganized crash the US doesn't take further action. Right now continued slow devaluation is what they want and it is what they have been getting. If devaluation gets too rapid, my bet is they take measures to slow the slide and they may not be measures the rest of the world likes. Look what happened to the dollar when the Georgia tango with Russia heated up. In addition, one of the options may just be joint QE. All debts washed away, and jubilee. This just has to be done in as secret and controlled a manner as possible. I don't know if that route is possible, but it will be contemplated.

The US is a huge battleship, I don't see it sinking rapidly or easily. I do agree that it has likely reached its peak and that the salad days are over.

[c1ue]

Re: Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen

Agreed that the US is weakening the dollar with its policies, but there has been no crash yet. I realize what the flows have been and that China's purchases have slid down the yield curve. But there has been no crash.

Past performance is no indicator of future behavior.

If you are correct, we will have a unilateral crash because no one buys the enormous debt. Not only that, but that crash should happen soon. I'm not convinced that facing the option of a disorganized crash the US doesn't take further action. Right now continued slow devaluation is what they want and it is what they have been getting. If devaluation gets too rapid, my bet is they take measures to slow the slide and they may not be measures the rest of the world likes.

A unilateral crash will occur if the US continues its spendthrift ways. The warnings from other nations and their actions have been very clear in the past year - but the US so far has not only failed to either reform, rein in spending, or sell its good stuff but rather has doubled (or more like 10X) down.

As for whether/what the crash will be - we know what it won't be: an outright default on debt payments.

We know what it will be: devaluation of the dollar. We don't know exactly when or how much and it is because of this that the possibility of a balance of payments crash exists (i.e. the dollars will there, but the creditors won't accept them).

Look what happened to the dollar when the Georgia tango with Russia heated up.

Sure, the dollar went up when the Olympic kickoff ceremonies in Abkhazia kicked off. The dollar also went up when the world markets crashed in both the 1st (Bear) and 2nd (Lehman, WaMu, Wachovia) 'credit crunches'.

Your view is this is some systemic feature; my view is this was a last reflexive action similar to mice addicted to crack hitting their crack levers.

Note how there was no talk last year about dollar devaluation or a US debt crisis - this time around even the MSM has shown hints of these topics. Will the world crack addicts hit the lever one more time? It is possible but equally possible that the habit is breaking.

In addition, one of the options may just be joint QE. All debts washed away, and jubilee. This just has to be done in as secret and controlled a manner as possible. I don't know if that route is possible, but it will be contemplated.

It would depend on who 'joint' is.

The US and UK are clearly QE-ing.

The EU is clearly not.

China is QE-ing, but has relatively little debt.

Japan has been QE-ing a little, but so far seem reluctant to extinguish their citizen's savings - in any case which their massive debt is internal whereas their massive savings are US Treasuries/dollars.

The rest of the world is mostly a creditor or neutral with the exceptions of Eastern Europe and the PIGS. These latter two will be constrained by the EU's policies.

The US is a huge battleshipthe Titanic, I don't see it sinking rapidly or easily. I do agree that it has likely reached its peak and that the salad days are over.

Quite true. It all depends on when/where you see the beginning.

From my view the iceberg has been hit and the deck chairs already in the 3rd dance. Only this time it is the bankers in the lifeboats and everyone else who is going to freeze/drown.