1997 ?!

[jk]

Re: 1997 ?!

One can easily see the 1997 crisis on this longer term chart, one of the very few I've created based on "conventional" economics.










And the closeup is definitely showing the current stress:








http://www.nowandfutures.com/financial_crisis.html

(warning - complex economics on the top portion of the page)

bart,
the biggest factor in your model is the currency "deviation from trend." what kind of currency and/or gold moves would it take to make those lines shoot up to say .60 or .70?

[bart]

Re: 1997 ?!

bart,
the biggest factor in your model is the currency "deviation from trend." what kind of currency and/or gold moves would it take to make those lines shoot up to say .60 or .70?

True, but it's barely over 25%.

The various elements also move based on both speed and amount of change so its almost impossible to say.

Here's a older chart that shows the USDX from 1970-2006, maybe it'll help answer it for you?

[FRED]

Re: 1997 ?!

It has been a bit over a year since the above comments were posted. With 54 weeks to seek clarification of what may happen, do you have an opinion in answer to any of the questions raised?

We're working on this week's Weekly. It's a maddening series of ten questions that lead the reader like a dazed patient down the institutional green cinder block corridor to a heavy door which leads to a white painted room filled with florescent light where a on a lone bare metal table is a piece of paper with the single, inescapable conclusion!

Question #1: Why isn't $83 oil a problem for the world today compared to 1970s?
Answer: Because unlike the 1970s, the countries selling the oil re-invest the profits back into the countries that are buying the oil. This maintains the currencies and low inflation and interest rates of the oil consuming nations.

Question #2: Why are they re-investing the profits back into the US versus Asia where they can get a better return?
Answer: Because if they re-invested the profits into Asia they'd not get a better return because the resulting decline in the dollar, and high inflation and interest rates will slow the US economy, which will then cease to generate demand for Asian goods.

Question #3: Who are the US investors in these oil producing countries?
Answer: The leadership which is maintained by US military power.

Question #4: Is the recently declining dollar related to recent developments in Iraq?
Answer: If the current leadership in the middle east changes hands, as many predict, the entire system will come unglued.

[GRG55]

Re: 1997 ?!

We're working on this week's Weekly. It's a maddening series of ten questions that lead the reader like a dazed patient down the institutional green cinder block corridor to a heavy door which leads to a white painted room filled with florescent light where a on a lone bare metal table is a piece of paper with the single, inescapable conclusion!

Question #1: Why isn't $83 oil a problem for the world today compared to 1970s?
Answer: Because unlike the 1970s, the countries selling the oil re-invest the profits back into the countries that are buying the oil. This maintains the currencies and low inflation and interest rates of the oil consuming nations.

Question #2: Why are they re-investing the profits back into the US versus Asia where they can get a better return?
Answer: Because if they re-invested the profits into Asia they'd not get a better return because the resulting decline in the dollar, and high inflation and interest rates will slow the US economy, which will then cease to generate demand for Asian goods.

Question #3: Who are the US investors in these oil producing countries?
Answer: The leadership which is maintained by US military power.

Question #4: Is the recently declining dollar related to recent developments in Iraq?
Answer: If the current leadership in the middle east changes hands, as many predict, the entire system will come unglued.

I don't know about the White Room, but I'll certainly be looking forward with particular interest to this Weekly!

Regarding answer 1 it seems to contradict the popular view and what we've been told about the Petrodollars from that era. I think the argument goes something like this...

The money got recycled because:

• Back then the Gulf Arabs were not investing in their own countries at anywhere near the (economically proportional) rate they are today;
• Back then they weren't building national air carriers, tourist amusements (indoor ski hills anyone?), shopping malls and Duty Frees;
• Back then they weren't industrializing and building petrochemical plants, refineries, shipyards, aluminum smelters, steel mills and fertilizer plants at anywhere near the pace of today;
• Back then the Seven Sisters brought in all the capital that went into their oil sector, today they own it and fund a major part of it themselves;
• Back then they weren't installing container ports, dry-docks, airports, H2O desalination, 5-star hotels, resorts, office towers and housing tracts at the pace of today;
• Back then they were recycling money to the US to buy Boeings, Cadillacs, and US agricultural products - today they buy Airbus' and Range Rovers and import cheeze from Holland;
• Back then they weren't trying to buy up every last Canadian gas company, UK supermarket, international stock exchange, or container port wherever it might be.

So if they didn't recycle it into US denominated paper back then, what did they do with it? Convert it to gold bars in Zurich, or hand it to the Hunts to help them corner the silver market? No need to respond and spoil the surprise - I'll wait for the Weekly...

[friendly_jacek]

Re: 1997 ?!

Someone else stole the 1997 analogy:
http://bespokeinvest.typepad.com/bes...using-vs-.html

[metalman]

Re: 1997 ?!

Someone else stole the 1997 analogy:
http://bespokeinvest.typepad.com/bes...using-vs-.html

maybe itulip ought to change its slogan from "Predicting our economic future since 1998: You Heard it Here First" to "Imitation is the sincerest form of flattery".

[friendly_jacek]

Re: 1997 ?!

Sorry for reviving this old thread started by jk.

I liked this theory so much and I thought it was so elegant that I was positive it had to play out in one fashion or another, long after jk gave up on it.

In retrospect it did play out, but in a fashion much different that I envisioned.

This is the corrected version:

As the credit started to implode in 2007 due to a subprime meltdown (analogue to 1997 emerging markets default), Fed goosed the system with aggressive rate cuts and debasing of dollar (analogue to post 1998 and circa 2000 liquidity), hoping to contain the problem. The extra liquidity did not go to general equities though or even real estate, instead it concentrated in one class of assets: commodities and mostly oil and gold (analogous to selective NASDAQ bubble in 2000) succking up a lot of speculation and dumb money into gold at $1000 or oil at $147.

The accelerated credit and derivatives destruction cought up with inflation quickly and spilled into all assets and global economy, this is the deflation vs disinflation we are seeing now (analogous to the sharp dollar rise up to the end of 2001 and general asset deflation 2000-2002).

We had a terrorist atack in 2001 that made things worse. Who is to say that there were no financial terrorism acts in the form of naked shorting of selective finance stocks by Osama and his friends in 2008?

Anyhow, nice story showing how history doesn't repeat but rhymes.

Will there be future inflation and dollar debasing a la 2003? Sure! But not before the flame of deflation extinguish itself by engulfing all the flamable objects (derivatives and speculative credit). The big question is when that will happen, and I don't believe anyone knows for sure.

So, in summary, it is a story of Ka-Poom, not different from EJ's theory or Marc Faber's interpretation of things.