questions

[jk]

peterm and i just exchanged some msgs which we decided to post to start a thread

I think all agree that the mess we are in results from decades of ever expanding credit/debt. The Ka-Poom theory sees some disflaflation first from reduced credit availability (housing), and forecasts high inflation from attempts from political pressure and central bank actions to revive the economy. The theory assumes that the Ka phase will not become deflationary as the liquidity injection will start before deflation takes hold.
I do agree 100% that this is the preferred and natural reaction from the powers. However I am not yet convinced that they can reliquify the system successfully.

One part of my doubt involves around how liquidity interacts with the economy and the volume of liquidity already out there (deminishing the return of an extra injection). There is a sea of liquidity sloshing around the globe and moving in and out different ponds (currencies, bonds, assets, stocks, etc.).
- how was this liquidity created in the past? Was this liquidity predominantly created at the central bank level, or at the financial bank level?
and
- what contributed most to increase liquidity (was it the lowering of fractional reserve requirements, lower of lending standards, or the sale of treasury notes, etc.)? What is the most important source in liquidity volume? Is money 'printed' or 'debt' created.
And to be answered later; can the same ways be used again to further increase liquidity?

This also leads to my questions about the liquidity system as such. Is it one system? Or are there more liquidity systems with different effects on the economy? e.g. First a 'central bank liquidity' where money policies are made and through notes real money is injected. Second a 'financial institute liquidity' where the money reaches the banks, hedge funds, mortgage companies, etc. and is multiplicated via fractional reserve methods and derivatives. And thirdly a 'broad liquidity' that reaches the public and is used in daily life?
- if you want to stimulate the economy is it then enough to just inject liquidity at the top or is it necessary that the liquidity reaches the public?
- will the economy be stimulated when the money created directly flows into hedge funds and banks playing the stock market?
- assuming you want to increase liquidity now to stimulate the economy. What measures are available?
can you increase the willingness to lend, cut taxes, increase wages, or are there other ways ?????
What extraordinary measures can the FED resort to? You can lead the public to the credit pool, but how can you make the public to drink that credit??

A also we should address another basic question.
- What power does the FED have? Does the FED set rates or does it follow rates set by the money markets? How big is the FED TIO operation compared to money markets and currency players?
They can probably bluff the stock market, but can they swing the bond or currency markets?

Another part of my questions about the future involves the international dimension and currency effects.
Often you see the argument that the recycle the Chinese 'savings glut' into treasury notes first and Fannie papers later is caused by a desire of the Chinese to stimulate consumer demand in the US and/or because the US is the best place to invest.
If it is indeed demand stimulation, how can you relate that to Schiff’s decoupling argument? Does this Chinese support not mean that the Chinese are very afraid being hurt US consumer slow-down (they are taking a huge currency risk)?
-what incentive do the Chinese have to continue their support now the housing ATM is faltering?
-what part of the US population will decrease spending? Is the Wal-Mart or the Nordstrom public? And where do these companies source their products?
-is there any reason to expect that the US can go in recession without being followed by the other world economies?
e.g. look at the mass of 'undocumented workers' that send money back home to support their families. What if these people loose their jobs or even when the dollar drops? How will that ripple into LATAM??

Debt
- when will US debt become untenable?
When do you get to the point that you need more debt to service the existing bebt, spiraling out of control?
Just a start .... so many questions so few answers

[jk]

Re: questions

Quote:

Originally Posted by PeterM I think all agree that the mess we are in results from decades of ever expanding credit/debt. The Ka-Poom theory sees some disflaflation first from reduced credit availability (housing), and forecasts high inflation from attempts from political pressure and central bank actions to revive the economy. The theory assumes that the Ka phase will not become deflationary as the liquidity injection will start before deflation takes hold. I do agree 100% that this is the preferred and natural reaction from the powers. However I am not yet convinced that they can reliquify the system successfully.

i'm not convinced either. i think there is a risk of a deflationary run-away, daisy-chain bankruptcies and derivative counter-party failures.

Quote:

This also leads to my questions about the liquidity system as such. Is it one system? Or are there more liquidity systems with different effects on the economy? e.g. First a 'central bank liquidity' where money policies are made and through notes real money is injected. Second a 'financial institute liquidity' where the money reaches the banks, hedge funds, mortgage companies, etc. and is multiplicated via fractional reserve methods and derivatives. And thirdly a 'broad liquidity' that reaches the public and is used in daily life?

my own question along the same lines has to do with liquidity in countries other than the u.s. i think the discussion here has been 95% focused on the u.s., and more attention should be directed to other countries.

Quote:

What extraordinary measures can the FED resort to? You can lead the public to the credit pool, but how can you make the public to drink that credit??

the fed can start buying treasuries with longer maturities and so bring down the yield curve. via its ability to liquify banks it can indirectly liquify other markets - equities, real estate, collectible figurines. i believe there have been a few discussions on this board about what the fed can do. there is also bernanke's famous helicopter speech, "deflation: making sure 'it' doesn't happen here," in which bernanke very explicitly explores these options.

Quote:

How big is the FED TIO operation compared to money markets and currency players? They can probably bluff the stock market, but can they swing the bond or currency markets?

i don't know anything about the tio operations-- that's bart's specialty. you're right, i think, to ask about the bond and currency market, because they are so much larger than the equities markets. i think the fed can certainly handle the bond market, because it can directly purchase tbonds, and just he announcement that it will purchase all tbonds of a certain maturity at any price of x or below, will put a floor on the bond market, and thus a ceiling on yields. it will be harder for them to directly control spreads - corporate, mortgage backed, and so on, but even that seems doable once the tbond yield curve is nailed into place. the currency market is huge, however. the fed can certainly trash the dollar, but can they support it? that would be harder unless they also raise rates. i'm no expert in these areas.

Quote:

Another part of my questions about the future involves the international dimension and currency effects. Often you see the argument that the recycle the Chinese 'savings glut' into treasury notes first and Fannie papers later is caused by a desire of the Chinese to stimulate consumer demand in the US and/or because the US is the best place to invest. If it is indeed demand stimulation, how can you relate that to Schiff’s decoupling argument? Does this Chinese support not mean that the Chinese are very afraid being hurt US consumer slow-down (they are taking a huge currency risk)? -what incentive do the Chinese have to continue their support now the housing ATM is faltering?

i think the chinese will support the dollar as long as there is an export market, and their support will be equal to the extent of the export market. if the u.s. economy slows and consumption drops, then chinese exports to the u.s. will be diminished. this means that fewer dollars will paid to chinese exporters. these fewer dollars held by chinese exporters will be obtained by the pboc buying them
in exchange for yuan. the pboc may or may not sterilize this purchase by issuing an equivalent amount of yuan bonds. the pboc will then take these fewer dollars and buy tbills or tbonds, thereby supporting the dollar, but only to the tune of the fewer dollars. if the pboc wanted to support the dollar more strongly, they'd have to BUY dollars from other dollar holders - given that they are already sitting on a trillion dollars, it seems to me unlikely that they would BUY dollars on the open market. the big problem for china then is what happens to all their excess capacity? does china go into a recession and how does the government deal with it?

Quote:

-what part of the US population will decrease spending? Is the Wal-Mart or the Nordstrom public? And where do these companies source their products?

my own guess is that the lower end retailers are hit first and hardest, the higher end retailers will be hit later, and how hard depends on how severe the recession is.

Quote:

-is there any reason to expect that the US can go in recession without being followed by the other world economies? e.g. look at the mass of 'undocumented workers' that send money back home to support their families. What if these people loose their jobs or even when the dollar drops? How will that ripple into LATAM??

i, too, find it hard to believe that the rest of the world won't follow the u.s. into recession. this is a major question i have about schiff's scenario, in which chinese and other global demand picks up so nicely as the dollar plunges and u.s. demand is reduced.

Quote:

Debt - when will US debt become untenable? When do you get to the point that you need more debt to service the existing bebt, spiraling out of control? Just a start .... so many questions so few answers

i don't the u.s. debt becomes untenable this side of hyperinflation. what dim prospects we see! yet the dow is about to hit a new high! what a disconnect!

[jk]

Re: questions

posted by PeterM

Quote:

Originally Posted by PeterM Debt - when will US debt become untenable? When do you get to the point that you need more debt to service the existing bebt, spiraling out of control? Just a start .... so many questions so few answers

Quote:

Originally Posted by jk i don't the u.s. debt becomes untenable this side of hyperinflation. what dim prospects we see! yet the dow is about to hit a new high! what a disconnect!

Thanks,
I think we both have about the same questions and feeling of amazement. I am rather new at this board-stuff. Is there a way to transfer our discussion so we can get input of the others?
May be split along the main question lines.

Also I know of some other boards that discuss some these issues. I don't want however to be perceived as 'plugging' commercial sources.

Do you think as one of the 'founding fathers' ;-) that a source page might be something for a seperate part on iTulip....
e.g. one of the best fora I know with solid discussions and links related to the bubble http://www.siliconinvestor.com/subje...ubjectid=54034

on the stock market http://www.capitalstool.com/forums/i...hp?showforum=7
and http://www.capitalstool.com/forums/i...hp?showforum=3


for gold etc. from a Canadian view
http://www.billcara.com/

and certainly this one discussing the flow of money, FED activities, foreign central bank buying, etc. (I used to be paid subscriber)
http://wallstreetexaminer.com/
parts of the site are public and here http://www.streetiq.com/dir/CAPITALSTOOL.shtml# they discuss these issues often open for the public. I think you would enjoy the last podcast.
Quite an extensive overview on the actions of the FED last week, energy, housing, etc.

[Ann]

Re: questions

I believe that what EJ's saying is that Bernanke is saying that "not allowed" stuff from column B gets moved to "allowed" stuff in column A. Then the Fed prints money and buys the stuff.

My question is, if the Fed does this, doesn't the dollar (I mean, the Bonar) turn to toilet paper? And surely demand for everything falls and we see a global recession.

So, EJ, does is the recession WORSE in the US than in other countries, or not?

[bart]

Re: questions

- how was this liquidity created in the past? Was this liquidity predominantly created at the central bank level, or at the financial bank level?

In my opinion, they are so closely intertwined that I could answer either way and defend it. Do recall EJ's comment about it being a "system".
If pressed though, in the '70s it was much more at the central bank level and has moved over the decades away from them towards other financial institutions.

What is the most important source in liquidity volume? Is money 'printed' or 'debt' created.

Debt, by far.

M3 is about $10.5 trillion.
Debt, depending on how its measured, is between $35 and $70+ trillion.

And to be answered later; can the same ways be used again to further increase liquidity?

Yes, why not (assuming no new laws or regulations)?

- if you want to stimulate the economy is it then enough to just inject liquidity at the top or is it necessary that the liquidity reaches the public?

- will the economy be stimulated when the money created directly flows into hedge funds and banks playing the stock market?

I suggest that you think about the basic definition of inflation as being more money than goods - that should give you your answers.

- assuming you want to increase liquidity now to stimulate the economy. What measures are available?
can you increase the willingness to lend, cut taxes, increase wages, or are there other ways ?????

There's the infamous Bernanke "helicopter drop" which was somewhat actually implemented in my opinion with the 2003 tax rebate.

What extraordinary measures can the FED resort to? You can lead the public to the credit pool, but how can you make the public to drink that credit??

EJ had some great links on another thread to various Fed speeches and others opinions that covered some of that area. One example is that a tax could actually be instituted on savings to encourage spending.

This is the classic inflation / deflation debate area too. I'm on the inflation side like EJ, and one somewhat extreme example should work.
Assume that one day you see that prices are going up at 10-15% or more per year and you have available cheap credit and you don't have as much ("whatever") as you want - wouldn't you think that many would take advantage of it?

- What power does the FED have? Does the FED set rates or does it follow rates set by the money markets? How big is the FED TIO operation compared to money markets and currency players?

They can probably bluff the stock market, but can they swing the bond or currency markets?

Wow - so far these questions could be the subject of a Masters thesis or two. I hope you understand that I'm just giving very general and best effort quick answers here.

The Fed only sets the Fed Funds and Discount rates but in my opinion does heavily influence other rates with their Securities Lending operation - its perfectly legal too.
Here's my chart which you may have already seen - it addresses two of your questions. Please note too that I am in no way saying or even implying that the Fed controls the bond market - its a very large influence though.




The TIO operation is tiny compared to money markets and Forex trading. The maximum TIOs I've seen are well under $50 billion and around $2 trillion is traded every day in currency markets.
Do note that the TIO operation is *not* the Fed - the T in TIO stands for the Treasury Department of the US Gov't, and the Fed is at best only quasi-governmental.

-what incentive do the Chinese have to continue their support now the housing ATM is faltering?

Exports and internal stability, as its been for years, but its far from that simple.

- when will US debt become untenable?
When do you get to the point that you need more debt to service the existing bebt, spiraling out of control?

Nobody knows.

True fundamentals always catch up though.

[WDCRob]

Re: questions

I believe that what EJ's saying is that Bernanke is saying that "not allowed" stuff from column B gets moved to "allowed" stuff in column A. Then the Fed prints money and buys the stuff.

Would this require Congressional intervention? An Executive Order? Who can authorize the Column B to Column A switch?

[jk]

Re: questions

Would this require Congressional intervention? An Executive Order? Who can authorize the Column B to Column A switch?

i think the fed can in fact already "support" [but not execute for its own account] column b actions when performed via banks.

[WDCRob]

Re: questions

Thanks JK.

Would the timing and level of this "support" be widely known or reported? I'm curious whether or not we'd be able to see these efforts and incorporate them into decision making.

[bart]

Re: questions

Thanks JK.

Would the timing and level of this "support" be widely known or reported? I'm curious whether or not we'd be able to see these efforts and incorporate them into decision making.

I don't think its very likely that it would be known or reported widely, but some of it will likely/hopefully be detected by a set of very arcane charts I keep on my Fed watch page in the GSDS section.
GSDS (Government Securities Dealers Statistics) stats track activities of the 27 or so Fed primary dealers (major banks and financial instititions directly connected to the Fed) and what they're doing in 2 out of the 4 column B areas.

The 4th one, equities, may be tracked similarly (and also hopefully) by both repos on the same page and also perhaps via TIO activities by the U.S. Treasury on my "daily" page.

There are other ways to track it too, one of the better and simpler ones being the US dollar price of gold. Gold has always been quite good at reflecting 'behind the curtain' activities way before any mainstream data or reports.

JK was basically correct too - by law, the Fed can't directly support those markets. Whether they actually covertly do or not is one of those areas that is quite unclear and subject to a lot of opinion, as witness all the PPT and other similar references on various boards. I think they do but its just an opinion.

[lobodelmar]

Re: questions

Here is what I don't get: When JK or others mentions the world following the US into recession, it makes the world economy sound like a huge ponzi scheme. It isn't true, right? Say it isn't so.

In what scenarios WOULDN'T that happen? There have to be some out there.

[PeterM]

Re: questions

Thanks Bart. Just started to go through the charts on your site. A lot of info there ... I need more time in a day.

I think I need to rephrase my main questions. Please point out if I am incorrect or if you have other suggestions.

1. I agree the FED will try, but can they really increase liquidity enough? Considering that:
- they can't further reduce the fractional reserve requirements.
- banking reserves are low and the banks have a huge exposure to mortgage debt which might reduce the willingness of banks to lend. I assume here that the FED, being a private consortium, somehow wants to get repaid (otherwise they endanger their own existence).
- the amount needed to generate a liquidation effect must be huge. I can't find the numbers anymore but last decades the amount of debt needed to create 1$ extra GDP growth has increased considerably (the rule of diminishing return).

2. The government can liquidate the public via tax cuts. This worked in the past but I can’t see tax cuts happen again with the current deficits.

3. If the FED wants to increase liquidity the (capability to create) money first goes to the primary banks. Then the financial system somehow has to get that money into in the economy.
- part goes to proprietary trading …. I guess this will continue and it might drive up the stock market. However I fail to see how this increases the wealth and spending power of the general public.
- part of the new money will be lend (after fractional multiplication) to the hedge funds. I guess this will continue as banks earn money on three sides: from lending, fees and cleaning out the hedge funds. If funds go bust, it will be the affluent public that gets hurt. If the hedge funds win, the affluent get richer, but again … will this reach J6P. I don’t see wide economic revival here with investment in production capacity.
- part will be lend to the public (after fractional multiplication , securitization and derivative ‘hedging’ activities). In the stock market boom this helped to get money into the hands of the public, but as I understand it, nowadays most activity in the stock market is program trading. In the RE Ponzi game it worked even better as the masses took more debt, expecting ever rising housing prices. But this Ponzi game stopped and affordability levels and lending standard are at all time lows. The game was based on the willingness of the public to take on more debt. Now prices leveled/dropped and the fear starts to set in. I can’t imagine that this fear can be turned to willingness even if the FED starts cutting rates.

I my mind everything hinges on the willingness of the public to borrow, the willingness of the banks to lend, and the willingness of mainly Japan and China to recycle their ‘savings’ to lower the interest burden in the US.


I empahasized the willingness here as IMO the dis/de/inflation story is not just a FED issue. I think it has much more to do with mentality and the way the public and banks perceive the balance of opportunities to win (greed) and threat to loose (fear) money.


May be I should start with even more basic questions.
1. If there is no willingness to borrow in the public, can FED injected liquidity revive the economy without the public? Or will the liquidity then accumulate and slosh around in speculation funds of the financial industry?

2. If the FED goes to unconventional methods, how will that work? Can somebody try to explain a little more detailed how that would work practically? It might be my lack of imagination, but I can’t see how that would work without putting the dollar in a tail-spin. Nice for the obligations of the government, but the banks (as holder od debt) will loose wealth.

[bart]

Re: questions

Here is what I don't get: When JK or others mentions the world following the US into recession, it makes the world economy sound like a huge ponzi scheme. It isn't true, right? Say it isn't so.

In what scenarios WOULDN'T that happen? There have to be some out there.

Very complex question, but in a nutshell - I suppose anything is possible since the US is losing economic importance. Decades ago, the US economy was over 50% of the world economy but its now under 25%.

But I hesitate to say its different this time since its such a high correlation - the old saw is "when the U.S. sneezes, the world catches a cold". That said, it wouldn't surprise me if the US economy did have a recession and much of the rest of the world just slowed down some.

[Jim Nickerson]

Re: questions

Thanks Bart. Just started to go through the charts on your site. A lot of info there ... I need more time in a day.

I think I need to rephrase my main questions. Please point out if I am incorrect or if you have other suggestions.

1. I agree the FED will try, but can they really increase liquidity enough? Considering that:
- they can't further reduce the fractional reserve requirements.
- banking reserves are low and the banks have a huge exposure to mortgage debt which might reduce the willingness of banks to lend. I assume here that the FED, being a private consortium, somehow wants to get repaid (otherwise they endanger their own existence).
- the amount needed to generate a liquidation effect must be huge. I can't find the numbers anymore but last decades the amount of debt needed to create 1$ extra GDP growth has increased considerably (the rule of diminishing return).

2. The government can liquidate the public via tax cuts. This worked in the past but I can’t see tax cuts happen again with the current deficits.

3. If the FED wants to increase liquidity the (capability to create) money first goes to the primary banks. Then the financial system somehow has to get that money into in the economy.
- part goes to proprietary trading …. I guess this will continue and it might drive up the stock market. However I fail to see how this increases the wealth and spending power of the general public.
- part of the new money will be lend (after fractional multiplication) to the hedge funds. I guess this will continue as banks earn money on three sides: from lending, fees and cleaning out the hedge funds. If funds go bust, it will be the affluent public that gets hurt. If the hedge funds win, the affluent get richer, but again … will this reach J6P. I don’t see wide economic revival here with investment in production capacity.
- part will be lend to the public (after fractional multiplication , securitization and derivative ‘hedging’ activities). In the stock market boom this helped to get money into the hands of the public, but as I understand it, nowadays most activity in the stock market is program trading. In the RE Ponzi game it worked even better as the masses took more debt, expecting ever rising housing prices. But this Ponzi game stopped and affordability levels and lending standard are at all time lows. The game was based on the willingness of the public to take on more debt. Now prices leveled/dropped and the fear starts to set in. I can’t imagine that this fear can be turned to willingness even if the FED starts cutting rates.

I my mind everything hinges on the willingness of the public to borrow, the willingness of the banks to lend, and the willingness of mainly Japan and China to recycle their ‘savings’ to lower the interest burden in the US.


I empahasized the willingness here as IMO the dis/de/inflation story is not just a FED issue. I think it has much more to do with mentality and the way the public and banks perceive the balance of opportunities to win (greed) and threat to loose (fear) money.


May be I should start with even more basic questions.
1. If there is no willingness to borrow in the public, can FED injected liquidity revive the economy without the public? Or will the liquidity then accumulate and slosh around in speculation funds of the financial industry?

2. If the FED goes to unconventional methods, how will that work? Can somebody try to explain a little more detailed how that would work practically? It might be my lack of imagination, but I can’t see how that would work without putting the dollar in a tail-spin. Nice for the obligations of the government, but the banks (as holder od debt) will loose wealth.

John Hussman in his this week's piece discusses the Fed, and concludes with:

Except in times of financial crises, when people are trying to convert their deposits into cash and the Fed has a truly legitimate role as a “lender of last resort,” the Fed's moves are essentially irrelevant.

http://hussmanfunds.com/wmc/wmc061002.htm

[bart]

Re: questions

John Hussman in his this week's piece discusses the Fed, and concludes with:

http://hussmanfunds.com/wmc/wmc061002.htm

Yep, all sorts of opinions out there about the Fed. I have mine and Hussman has his.

I will say that he does make a valid point that other central banks are much more important now than in any previous decade, but I just plain don't buy off on how little of an impact and effect he thinks they have.

[jk]

Re: questions

Thanks Bart. Just started to go through the charts on your site. A lot of info there ... I need more time in a day.

I think I need to rephrase my main questions. Please point out if I am incorrect or if you have other suggestions.

1. I agree the FED will try, but can they really increase liquidity enough? Considering that:
- they can't further reduce the fractional reserve requirements.
- banking reserves are low and the banks have a huge exposure to mortgage debt which might reduce the willingness of banks to lend. I assume here that the FED, being a private consortium, somehow wants to get repaid (otherwise they endanger their own existence).
- the amount needed to generate a liquidation effect must be huge. I can't find the numbers anymore but last decades the amount of debt needed to create 1$ extra GDP growth has increased considerably (the rule of diminishing return).

2. The government can liquidate the public via tax cuts. This worked in the past but I can’t see tax cuts happen again with the current deficits.

3. If the FED wants to increase liquidity the (capability to create) money first goes to the primary banks. Then the financial system somehow has to get that money into in the economy.
- part goes to proprietary trading …. I guess this will continue and it might drive up the stock market. However I fail to see how this increases the wealth and spending power of the general public.
- part of the new money will be lend (after fractional multiplication) to the hedge funds. I guess this will continue as banks earn money on three sides: from lending, fees and cleaning out the hedge funds. If funds go bust, it will be the affluent public that gets hurt. If the hedge funds win, the affluent get richer, but again … will this reach J6P. I don’t see wide economic revival here with investment in production capacity.
- part will be lend to the public (after fractional multiplication , securitization and derivative ‘hedging’ activities). In the stock market boom this helped to get money into the hands of the public, but as I understand it, nowadays most activity in the stock market is program trading. In the RE Ponzi game it worked even better as the masses took more debt, expecting ever rising housing prices. But this Ponzi game stopped and affordability levels and lending standard are at all time lows. The game was based on the willingness of the public to take on more debt. Now prices leveled/dropped and the fear starts to set in. I can’t imagine that this fear can be turned to willingness even if the FED starts cutting rates.

I my mind everything hinges on the willingness of the public to borrow, the willingness of the banks to lend, and the willingness of mainly Japan and China to recycle their ‘savings’ to lower the interest burden in the US.


I empahasized the willingness here as IMO the dis/de/inflation story is not just a FED issue. I think it has much more to do with mentality and the way the public and banks perceive the balance of opportunities to win (greed) and threat to loose (fear) money.


May be I should start with even more basic questions.
1. If there is no willingness to borrow in the public, can FED injected liquidity revive the economy without the public? Or will the liquidity then accumulate and slosh around in speculation funds of the financial industry?

2. If the FED goes to unconventional methods, how will that work? Can somebody try to explain a little more detailed how that would work practically? It might be my lack of imagination, but I can’t see how that would work without putting the dollar in a tail-spin. Nice for the obligations of the government, but the banks (as holder od debt) will loose wealth.

i think a successful intervention by both monetary and fiscal authorities depends on intervening in time, i.e. before deflation takes hold. thus a housing crash landing with all particpants immolated gets avoided and instead we have a housing hard landing in which rates come down fast enough for the arm resets not to be crushingly burdensome and for there to be opportunities to refi at lower rates. it won't ignite a new housing bubble, but it could limit the casualties.

money will flow to some domestic stocks, more foreign stocks and especially commodities. but the appearance of a crash will be avoided [hypothetically]. life will go on. times will be marginally tougher, with the price of heating oil and gasoline and electricity and food being relatively high and taking a bigger portion of income, with decreasing amounts available for discretionary spending.

the dollar will fall and there will be increased tourism to the u.s. by both europeans and asians.