Financial Synchronism: When Inflation meets Deflation

[phirang]

Re: Financial Synchronism: When Inflation meets Deflation

As I said, we're all going to get a chance to test our respective theories in practice.

phirang and $#* believe the present flight to safety is a straight line preview of what's to come: that the world's flight to US$ safety will subsidize the massive shoveling of credit that's been going on for the past year plus - trillions, and that this subsidy will continue into the indefinite future.

My view (and, I think, iTulip/metalman/EJ) is that it is the calm before the gust front hits. There is flight to safety certainly, but equally a massive world level deleveraging as the mini-Mes of FIRE around the world all rush for the exits (or are pushed by the collapse of their US parents).

Yet I still have not heard a good answer to my question: why would the rest of the world give their labor and commodities away for free?

The US cannot pay, and with the ongoing helicopter drops, clearly is in fact going to pave over all possible paper debts with electronic zeros.

It is exactly like the North Korean international trade method: give me money or I'll blow my own head off. But North Korea is small and the cost to help them a pittance. The US, on the other hand, is a large nation with a huge consumption monkey on its back.

Sure, the rest of the world will try to make the US' descent into fiscal sanity an orderly one - lots of reasons to prevent Mad Max from occurring in a nation with lots of nuclear warheads and experience destroying other nation's infrastructure.

But no good reason to give in to the US' monkey - that road leads nowhere good. Tough love it will be - financial methadone.

"tough love" took shanghai from 6000 to, what, 1500? Russia RTS is going to 500 at this rate.

Who loses in tough love? Does the US REALLY lose? Imagine the chaos in the BRIC's versus the grueling suffering in the US...

[sishya]

Re: Financial Synchronism: When Inflation meets Deflation

Yes, because everything is relative. If the situation in Russia hits the fan wouldn't you try to rescue some of your money abroad ? if you have small amounts a Swiss account would do it. But if you have much more the only relatively safe heaven would be US. If you are mart you can even make some small profit, if you are not so smart but at least careful you will not loose more than 20-30% in a few years.

Of course you can choose to put your money into some Bank in Iceland, hey Kudrin said they have an excellent budget discipline :eek:





No, because they are too small and to stupid to do what the Wall Street mafia does.

Now if all those money is coming to berth in US, will they be buying Fannie/Freddie Bonds ? The US Treasury has just guaranteed them.

I also think a lot of BRIC stocks and real estate has been propped up around 5 times by US investment banks. Now once these have given nice returns, these investment banks are trying to get back the money in dollars to bring it back to US.

[phirang]

Re: Financial Synchronism: When Inflation meets Deflation

Now if all those money is coming to berth in US, will they be buying Fannie/Freddie Bonds ? The US Treasury has just guaranteed them.

I also think a lot of BRIC stocks and real estate has been propped up around 5 times by US investment banks. Now once these have given nice returns, these investment banks are trying to get back the money in dollars to bring it back to US.

nobody wants agency paper: they know they wont get made whole on it.

[Guest]

Re: Financial Synchronism: When Inflation meets Deflation

Phirang - I think I'm a convert to this viewpoint. It is just too damn counterintuitive. It must be the play that actually works out. But it definitely has a time limit on it, after which the USD will make up for lost time on the downside. Still, that "time limit" may indeed be YEARS away! Reality always confounds our best efforts.

"tough love" took shanghai from 6000 to, what, 1500? Russia RTS is going to 500 at this rate.

Who loses in tough love? Does the US REALLY lose? Imagine the chaos in the BRIC's versus the grueling suffering in the US...

[bpr]

Re: Financial Synchronism: When Inflation meets Deflation

So, where does WB alleged restructuring fit in this, specially if such restructuring has former Mexican President Ernesto Zedillo (1994-2000) as head?...

Interesting times indeed.

Official WB release.

This won't end well for the WB.

"The G7 is not working," Zoellick said, referring to the group of rich countries including the United States, Canada, Britain, Germany, France, Italy and Japan. "We need a better group for a different time."

[c1ue]

Re: Financial Synchronism: When Inflation meets Deflation

Who loses in tough love? Does the US REALLY lose? Imagine the chaos in the BRIC's versus the grueling suffering in the US...

Yes, the US really loses.

Because the US has been getting something for less than par value.

The BRIC nations will lose also - in the sense that they won't grow as fast as they would. But the point again is that they won't ever grow as they have been if they receive zero or negative net value for their future contributions.

So once again - why would they do this? The choice at this point is no longer one of keeping a less profitable proposition short term in exchange for long term growth, it is one of getting nothing for something.

Even if the BRICs and other holders of US debt were able to reignite a bigger bubble, it is quite clear now that the consequences of doing so will be even worse than what is already happening.

Its like giving $10000 to a loser. Sure, maybe you're getting some interest payments, say $500/year. But if the loser can't pay, then giving him another $30000 isn't going to solve the problem. You may get $2000/year interest or even more, but you're still out an additional $30K. And if the loser defaults, then you're out quadruple what you would have lost.

The assumption that the rest of the world will continue to support the US is either that they're stupid, or that somehow the US/loser won't default.

And how bloody likely is that?

[phirang]

Re: Financial Synchronism: When Inflation meets Deflation

Yes, the US really loses.

Because the US has been getting something for less than par value.

The BRIC nations will lose also - in the sense that they won't grow as fast as they would. But the point again is that they won't ever grow as they have been if they receive zero or negative net value for their future contributions.

So once again - why would they do this? The choice at this point is no longer one of keeping a less profitable proposition short term in exchange for long term growth, it is one of getting nothing for something.

Even if the BRICs and other holders of US debt were able to reignite a bigger bubble, it is quite clear now that the consequences of doing so will be even worse than what is already happening.

Its like giving $10000 to a loser. Sure, maybe you're getting some interest payments, say $500/year. But if the loser can't pay, then giving him another $30000 isn't going to solve the problem. You may get $2000/year interest or even more, but you're still out an additional $30K. And if the loser defaults, then you're out quadruple what you would have lost.

The assumption that the rest of the world will continue to support the US is either that they're stupid, or that somehow the US/loser won't default.

And how bloody likely is that?

I spoke with my Chinese friends, and they said they hate the idea.

But they also said they understand why their government would do it...