"Too Big To Fail" taken to its logical extreme?

[GRG55]

Here's an interesting bit of extrapolation, from saving Fannie to saving the country's fanny... :rolleyes:


From the International Herald Tribune:

Is America too big to fail?
Published: July 20, 2008

...Still, as Tilton and others are aware, one fundamental reality continues to offer assurances that foreigners will still buy American debt: In the global economy of the moment, the United States itself is too big to fail...

...In other words, in the estimation of people in control of money, the United States cannot be allowed to collapse, just as Fannie and Freddie cannot be allowed to fail. Too much is riding on their survival.

The central truth of that logic still seems to be apparent as the Treasury keeps finding takers for American debt.

So the government offers its rescue of the mortgage companies, and foreigners keep stocking the government's coffers...

[jk]

Re: "Too Big To Fail" taken to its logical extreme?

i think from the pov of the dollar surplus countries, there are at least 2 major financial issues: the value of their currently held portfolios of american debt, and the importance of their ongoing export trade with the u.s. with the chinese, i would think the ongoing trade is paramount because of its implications for chinese employment and social stability. for the oil producers, i would think the balance is at least somewhat more toward portfolio considerations.

in the event of a severe consumer-led recession in the u.s., the export market to the u.s. for chinese manufactured goods evaporates, which i think means an increased readiness to cash out dollar bonds in order to buy still more resources and also to stimulate their domestic economy directly. the oil exporters are somewhat less vulnerable to demand reduction, and will likely still recycle dollars directly into bonds and agencies. i've not addressed the japanese because i think their actions will be [even] more politically based.

in sum, as the u.s. shrinks as a market for others' exports, it becomes somewhat less "too big to fail."

[FRED]

Re: "Too Big To Fail" taken to its logical extreme?

i think from the pov of the dollar surplus countries, there are at least 2 major financial issues: the value of their currently held portfolios of american debt, and the importance of their ongoing export trade with the u.s. with the chinese, i would think the ongoing trade is paramount because of its implications for chinese employment and social stability. for the oil producers, i would think the balance is at least somewhat more toward portfolio considerations.

in the event of a severe consumer-led recession in the u.s., the export market to the u.s. for chinese manufactured goods evaporates, which i think means an increased readiness to cash out dollar bonds in order to buy still more resources and also to stimulate their domestic economy directly. the oil exporters are somewhat less vulnerable to demand reduction, and will likely still recycle dollars directly into bonds and agencies. i've not addressed the japanese because i think their actions will be [even] more politically based.

in sum, as the u.s. shrinks as a market for others' exports, it becomes somewhat less "too big to fail."

The official iTulip position on the deal between the US and it's oil and cheap goods trade partners (See Ka-Poom Theory - 1999 and Economic M.A.D. - March 2006) is that when the US stops acting as the demand engine for oil and goods exporters, they stop buying US treasury and agency debt. The error we made in 1999 was to assume that China's selling was to soon commence after US demand declined, leading to a reverse in capital flows and rising interest rates. In fact, what happened in the 2001 recession instance is that foreign purchases slowed but only in line with US demand for exports, that is, proportionately to the level of the trade. It should be remembered that a fundamental shift in the composition of foreign holdings of US debt occurred since our 1999 forecast: now the debt is mostly held by governments, not by private institutions.

Our assessment from interviews with a range of experts with varying perspectives since then, from Jamie Galbraith to Louis Gave to Martin Mayer, is that only political repudiation of US foreign policy will motivate a disproportionate net decrease in capital flows as US demand for exports declines. But a new alternative risk has arisen as the dollar declined 50% since our forecast: if US politicians during the developing recession bow to populist pressure to enact anti-market initiatives, in combination with a growing sense among America's top 10% who hold 90% of the capital in US markets that policy makers are either helpless to or are unwilling to take measures to limit further declines in purchasing power of the dollar, capital flight from the US may trigger the foreign sale of US debt held by governments.

[raja]

Re: "Too Big To Fail" taken to its logical extreme?

i think from the pov of the dollar surplus countries, there are at least 2 major financial issues: the value of their currently held portfolios of american debt, and the importance of their ongoing export trade with the u.s. with the chinese, i would think the ongoing trade is paramount because of its implications for chinese employment and social stability. for the oil producers, i would think the balance is at least somewhat more toward portfolio considerations.

in the event of a severe consumer-led recession in the u.s., the export market to the u.s. for chinese manufactured goods evaporates, which i think means an increased readiness to cash out dollar bonds in order to buy still more resources and also to stimulate their domestic economy directly. the oil exporters are somewhat less vulnerable to demand reduction, and will likely still recycle dollars directly into bonds and agencies. i've not addressed the japanese because i think their actions will be [even] more politically based.

in sum, as the u.s. shrinks as a market for others' exports, it becomes somewhat less "too big to fail."

Another wrinkle . . . as oil goes up and shipping costs increase, Asian countries might focus more on creating customers closer to home.

[sunskyfan]

Re: "Too Big To Fail" taken to its logical extreme?

An "America the Bubble" hypothesis? Couldn’t another way of interpreting the situation is that a bubble formed about the intrinsic value of the United States to maintain the financial, political, and security state of the world and that George Bush’s policies since 911 have demonstrated that assumption about that intrinsic value were/are not inline with markets valuation of the United States via the valuation of the US Dollar? My point is that most of the downward pressure on the Dollar is less about an existing structural imbalance and more about a crisis of confidence in what the

Perhaps, in the spirit of this site, this means that there will be a significant Obama rally on the Dollar if he wins. Funny, that John McCain’s only path to the Presidency is through the narrative that the last eight or more years have appeared to be a failure because the world problems have been so difficult and large. The irony is that the more that narrative succeeds it can only drive the dollar down further. If this hypothesis is true then the value of the Dollar will inversely correlate with the success of McCain’s candidacy. This should mean some interesting deltas in the value of the dollar about the time of both conventions and, of course, the election and inauguration.

[c1ue]

Re: "Too Big To Fail" taken to its logical extreme?

But a new alternative risk has arisen as the dollar declined 50% since our forecast: if US politicians during the developing recession bow to populist pressure to enact anti-market initiatives, in combination with a growing sense among America's top 10% who hold 90% of the capital in US markets that policy makers are either helpless to or are unwilling to take measures to limit further declines in purchasing power of the dollar, capital flight from the US may trigger the foreign sale of US debt held by governments.

I wonder how much of the 'hot money' going into China is from the US?

Between the likely appreciation of the RMB and the fact that they're growing, it would seem like a slam dunk to a lot of people. That the stock market punctured recently actually helps since there is also now a sense of bargain hunting.

More interesting - I wonder if the recent Luxembourg/Switzerland/UBS/tax evasion situation is related.

This deal has the real potential to cause decline in the largest 'black' money repositories around.

If I were trying to prevent capital flight from the US, there would be worse places to crack down on first.

[Rantly McTirade]

Re: "Too Big To Fail" taken to its logical extreme?

The official iTulip position on the deal between the US and it's oil and cheap goods trade partners (See Ka-Poom Theory - 1999 and Economic M.A.D. - March 2006) is that when the US stops acting as the demand engine for oil and goods exporters, they stop buying US treasury and agency debt. The error we made in 1999 was to assume that China's selling was to soon commence after US demand declined, leading to a reverse in capital flows and rising interest rates. In fact, what happened in the 2001 recession instance is that foreign purchases slowed but only in line with US demand for exports, that is, proportionately to the level of the trade. It should be remembered that a fundamental shift in the composition of foreign holdings of US debt occurred since our 1999 forecast: now the debt is mostly held by governments, not by private institutions.

Our assessment from interviews with a range of experts with varying perspectives since then, from Jamie Galbraith to Louis Gave to Martin Mayer, is that only political repudiation of US foreign policy will motivate a disproportionate net decrease in capital flows as US demand for exports declines. But a new alternative risk has arisen as the dollar declined 50% since our forecast: if US politicians during the developing recession bow to populist pressure to enact anti-market initiatives, in combination with a growing sense among America's top 10% who hold 90% of the capital in US markets that policy makers are either helpless to or are unwilling to take measures to limit further declines in purchasing power of the dollar, capital flight from the US may trigger the foreign sale of US debt held by governments.

"...political repudiation of U.S. foreign policy..."-expand and expound, please?

[Spartacus]

"Too Big To Fail" ????? no, how about

problems so big, no one & no coalition is powerful enough to fix them

Who could have stopped the titanic from sinking after it was hit?

[GRG55]

Re: "Too Big To Fail" ????? no, how about

problems so big, no one & no coalition is powerful enough to fix them

Who could have stopped the titanic from sinking after it was hit?

After it was hit?

Wow. I didn't realize those Newfoundland icebergs were that aggressive. :rolleyes:

[Spartacus]

Re: "Too Big To Fail" ????? no, how about

After it was hit?

Wow. I didn't realize those Newfoundland icebergs were that aggressive. :rolleyes:

the berg must have had some screech poured on it

[metalman]

Re: "Too Big To Fail" ????? no, how about

After it was hit?

Wow. I didn't realize those Newfoundland icebergs were that aggressive. :rolleyes:

Funny Auto Insurance Claim Excuses



These excuses were on accident claim forms of a major insurance company. ere asked for a brief statement describing their particular accident.

1. The other car collided with mine without giving warning of its intention.

2. I thought my window was down but found it was up when I put my hand through it.

3. A pedestrian hit me and went under my car.

4. The guy was all over the place. I had to swerve a number of times before I hit him.

5. I pulled away from the side of the road, glanced at my mother-in-law and headed over the embankment.

6. The accident occured when I was attempting to bring my car out of a skid by steering it into the other vehicle.

7. I was driving my car out of the driveway in the usual manner, when it was struck by the other car in the same place it had been struck several times before.

8. I was on my way to the doctor’s with rear-end trouble when my universal joint gave way, causing me to have an accident.

9. As I approached the intersection, a stop sign suddenly appeared in a place where no stop sign had ever appeared before. I was unable to stop in time to avoid the accident.

10. The telephone pole was approaching fast. I was attempting to swerve out of its path when it struck my front end.

11. To avoid hitting the bumper of the car in front, I struck the pedestrian.

12. My car was legally parked as it backed into the other vehicle.

13. An invisible car came out of nowhere, struck my vehicle and vanished.

14. When I saw I could not avoid a collision, I stepped on the gas and crashed into the other car.

15. The pedestrian had no idea which direction to go, so I ran him over.

16. I saw the slow-moving, sad-faced old gentleman as he bounced off the hood of my car.

17. Coming home, I drove into the wrong house and collided with a tree I don’t have.

18. The indirect cause of this accident was a little guy in a small car with a big mouth.