Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

[GRG55]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

You Canadians are lucky. You've got commodity exchanges where you can play with the stuff and you don't have to worry about price controls because Canada is resource rich and is unlikely to go broke. except for the high taxes, you've got it perfect for this scenario.

Unfortunately for me, I think the UK will also institute price controls so playing the price spikes on commodity exchanges here is ruled out. Also, I do believe that Britain is not far away from bankruptcy and is likely to go bankrupt faster and sooner than the US.

From my observations during time living part-time in London earlier this decade, and my wonderment that the UK government continued to let the insanity grow and grow [especially the property bubble], I could not argue with your closing statement above. The real wonder is that it has taken this long...

[hayekvindicated]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

From my observations during time living part-time in London earlier this decade, and my wonderment that the UK government continued to let the insanity grow and grow [especially the property bubble], I could not argue with your closing statement above. The real wonder is that it has taken this long...

Quite right. Its not surprising that they let this insanity continue. As long as property prices were going through the roof, it was easy for Blair to put on his smug smile, throw out more of his empty spin and claim how Britain's "economic model" was superior to the rest of Europe (especially Germany - a country Britain continuously lagged after WWII). And Brown could act smug that he had created a "miracle economy" (miracle is right!).

The property bubble won Nu-labour re-election twice. Now that the bubble has popped, the "evil bankers" need to be prosecuted. Now so far as I remember, not one political party or even politician warned against the average person levering himself or herself to the hilt on debt and turning the property market into a massive casino when the bubble was roaring ahead. Not one. Now the sanctimonious bastards are screaming that heads (not theirs of course) must roll.

[Southernguy]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Another outcome, a bit farther away?
As investors sell their dollars, held mostly in treasuries, interest on them rises.
In our "peripheral" countries this is called "riesgo país" or country risk. That is the difference our sovereign debt yields against similar US debt.
Of course, US debt can´t, by definition have a "riesgo país" different than 0.
It shall be possible, then, of countries having negative "riesgo país".
Most important, is that, once interest of treasuries arrives at some level, a very high one, investors begin to buy them again.
And of course, at some time US government, any US government, shall decide, after things get worse enough, that preservation of the dollar is the most important task.
At that point, with yields on treasuries being very high, it shall be a good time to buy them.
And sell everything else.
Then, all bubles explode again, gold, commodities, etc.
In the meantime, stash gold, commodities etf´s, and of course cash to finance one´s needs, that one in the currency that needs are bought in.

[kartius919]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Treasury yields can't rise without bankrupting our federal government. The US has to rollover a large number of T Bills and bonds. If the interest on those treasuries spike, it will require higher interest payments, pushing up the federal budget deficit. To finance the increased budget deficits the US will then issue more T Bills further driving up the rates forcing a nasty feedback loop. The US requires near zero interest rates to finance federal expenses. Only way that can happen is with the Federal Reserve becoming the buyer of last resort.

[Southernguy]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Except that, at some point the US begins to take IMF medicine, at least the one usually prescribed to our countries and does a brutal adjusting policy, reducing expense, and therefore begins to pay down debt, or at least balances the budget.
That would reduce sharply US living standards.
Now it seems politically unfeasable, but maybe in the not so long future the US discovers the danger that stopping to emit international reserve currency poses to its domination.
I think that, anyway, yields on treasuries are going to go up very much in the near future. Even as the FED makes more and more "monetary easing".

[strittmatter]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

just gimme double digit RR on cd's and I'll live with that.

has anyone mentioned lately how ****ed we are?

[Raz]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

HayekV: Price controls will usually exacerbate the supply shortage, and drive up the international [external to the price control environment] price of whatever is being controlled. Ever since EJ's piece about the potential for capital controls in the USA, I have revised my view about the USA being a "safe jurisdiction" in which to hold assets, or companies that have assets predominantly in that jurisdiction. However companies that hold high quality assets in the price controlled commodity [e.g oil reserves, etc.] outside the USA should benefit greatly from US price controls as supply gets clobbered still further.

I had about 20% of my liquid net worth in oil & gas stocks prior to the ugliness of last Fall (Ouch!). Thank heavens the remainder was almost all cash except for a 10% position in Precious Metals (I've been buying those since 1995.) For the very reasons GRG55 gave above I own Canadian energy companies (other than CVX, APC and OXY). I increased that proportion to 30% between mid-October and last week.

I sure hope the Canadian Government has better sense than ours.

[gwynedd1]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Except that, at some point the US begins to take IMF medicine, at least the one usually prescribed to our countries and does a brutal adjusting policy, reducing expense, and therefore begins to pay down debt, or at least balances the budget.
That would reduce sharply US living standards.
Now it seems politically unfeasable, but maybe in the not so long future the US discovers the danger that stopping to emit international reserve currency poses to its domination.
I think that, anyway, yields on treasuries are going to go up very much in the near future. Even as the FED makes more and more "monetary easing".

Hi Southernguy,

They should create a new currency called the USpeso and convert all US deposits from dollars to the USpeso. This will build up bank assets as they swap dollars for the new USPeso. Americans will still have a local currency and not see any nominal decline in their bank account. They will not lose a single USpeso. They can even be offered a +2% interest premium. Since the dollar will still need to be the legal tender they can back it by making them acceptable as Chuckie Cheese and video arcade tokens and possibly even some ocean side property rights on the Antarctic ice shelf.

Next they should then support housing with a 25% rental tax which will create demand for housing. In addition, a tax should be levied on any areas with low income to housing ratios to help support housing prices in troubled areas and equalize the relative attractiveness.

This should be combined with a new security called the FLR or Future Labor Right. This would allow Americans to allow private foreign investment into their future wages. If the economy worsens, then people will be able to take advantage of capital inflows from selling FLRs at attractive prices. To make this an attractive investment for capital flows a 10% levy on the sale will be used to create the infrastructure to secure these assets and to properly police them.

Warning! There is a spoof lurking above like a noxious rafter level cloud in a confined feeding facility.

[raja]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Move into anything that has a historical relationship with gold that is skewed eg. Dow to one oz. or even 1/2 oz. of gold or one oz. of gold to 100 barrels of oil. Or one OZ. of gold to a new home. Trade your physical asset of gold for these other physical assets. In the mania your neighbor will be day trading gold futures.

So . . . stocks, oil and/or real estate. Hmmmm.

I guess it depends on how dark your vision of the future probabilities are. Paper doesn't make me feel very secure, whether it's stocks or oil (I assume you're suggesting oil investments, not putting in oil tanks in your back yard).

Real estate could be good in the long term, but in the short term will be a loser. Retirees who have lost their pensions or nest eggs in the stock market are going to be moving into with their children or each other, as are people who are foreclosed upon. Rent is going to plummet due to all the empty houses.

[EDN]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Move out of gold . . . into WHAT ???

Will the new currency be established before the gold bubble pops??

There are a lot of gold bugs that anticipate a huge spike and a collapse of the gold price. That may happen, but many of them are making statements about when to sell your gold so that you don't suffer the expected decline.

Some of them say "Sell when your barber starts telling you about the merits of gold while he is cutting your hair." Other say, "Sell when the DOW and the price of an ounce of gold are equal." The list goes on and on.

It is ironic, but what all of these gold bugs miss is the reason you have gold in the first place. It isn't to make a profit (although that would be nice). It is to preserve wealth. The whole reason you have moved into gold is because you don't trust fiat currency in the current economic environment. Right???

So the answer is easy: You -DON'T- sell your gold until you -DO- trust the currency you get in exchange for it. It *IS* that simple. It is true you might give up some of the 'profit' you could have had. But especially in a conversion to a new currency, it is a safe bet you don't want to sell your gold for the old currency because it isn't going to be converted to the new currency at a par value. If it was, what would be the purpose of converting to a new currency?

[raja]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Next they should then support housing with a 25% rental tax which will create demand for housing. In addition, a tax should be levied on any areas with low income to housing ratios to help support housing prices in troubled areas and equalize the relative attractiveness.

Can you elaborate on this?

Who would be paying the tax, the landlord or the tenant? And, how would this be helpful?

[raja]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

There are a lot of gold bugs that anticipate a huge spike and a collapse of the gold price. That may happen, but many of them are making statements about when to sell your gold so that you don't suffer the expected decline.

Some of them say "Sell when your barber starts telling you about the merits of gold while he is cutting your hair." Other say, "Sell when the DOW and the price of an ounce of gold are equal." The list goes on and on.

It is ironic, but what all of these gold bugs miss is the reason you have gold in the first place. It isn't to make a profit (although that would be nice). It is to preserve wealth. The whole reason you have moved into gold is because you don't trust fiat currency in the current economic environment. Right???

So the answer is easy: You -DON'T- sell your gold until you -DO- trust the currency you get in exchange for it. It *IS* that simple. It is true you might give up some of the 'profit' you could have had. But especially in a conversion to a new currency, it is a safe bet you don't want to sell your gold for the old currency because it isn't going to be converted to the new currency at a par value. If it was, what would be the purpose of converting to a new currency?

It depends . . . .
See my post here

[FRED]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

There are a lot of gold bugs that anticipate a huge spike and a collapse of the gold price. That may happen, but many of them are making statements about when to sell your gold so that you don't suffer the expected decline.

Some of them say "Sell when your barber starts telling you about the merits of gold while he is cutting your hair." Other say, "Sell when the DOW and the price of an ounce of gold are equal." The list goes on and on.

It is ironic, but what all of these gold bugs miss is the reason you have gold in the first place. It isn't to make a profit (although that would be nice). It is to preserve wealth. The whole reason you have moved into gold is because you don't trust fiat currency in the current economic environment. Right???

So the answer is easy: You -DON'T- sell your gold until you -DO- trust the currency you get in exchange for it. It *IS* that simple. It is true you might give up some of the 'profit' you could have had. But especially in a conversion to a new currency, it is a safe bet you don't want to sell your gold for the old currency because it isn't going to be converted to the new currency at a par value. If it was, what would be the purpose of converting to a new currency?

Precisely so. Gold is a hedge. So are Treasury bonds. You can't "make money" in either, but can reduce losses. See: No such thing as a Treasury bond bubble. Same principle holds for gold.

[gwynedd1]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

Can you elaborate on this?

Who would be paying the tax, the landlord or the tenant? And, how would this be helpful?

Hi raja,

I may have left my spoof of the world bank and IMF a little too dry. And no, they are not helpful. Like a dog walking while it s***ts so do they leave a stinking trail of monopoly capital.

[EDN]

Re: Flow of Funds Q4 2008: Debt Deflation confirmation - Eric Janszen

It depends . . . .
See my post here

That is a subscribers only thread... I can't see it.