http://bloggingheads.tv/diavlogs/17812
It's both....
What if most of the marginal corporate debt had no bid ?
In Asia....unlike the US....this is largely the case....
What if this happens in the US ?
.................................................................
The de-leveraging is largely to blame....and the elimination
of trillions in credit is a self fulfilling profecy to certain economic calamity....
................................................................
Who wants to hold on to a BBB credit for 5 years ?
.................................................................
The question being....
There is nothing to do but to watch it happen....
Why ?
Deleveraging.....the elimination of trillions from the marketplace....
...................................................................
In simple terms....
Before there was $70 Trillion in the box....Then over $30 Trillion
was eliminated....
Thus it is not possible for the value in the box to be over $40 Trillion....
......................................................................
The government is not going to replace over $30 Trillion with $800 Billion....
......................................................................
Thus welcome to the "new valuations" world....
....................................................................
So now the next error to be made is simple to view....
The government will try to increase a progressive tax rate on a diminishing earner base....which is taking more from less....
So how it is possible that the economy can improve ?
...................................................................
The fact of the matter is that the US government has to dramatically downsize as it will have to either change permanently to a 10% consumption tax only....or will bandaid on a temporay basis the current progressive structure to reflect the same revenue....Bandaids do not promote investment....
Any other avenue will result in dramatic increases in debt and monetization....
.................................................................
One should hope that the government will change prior to calamity rather than after calamity....
................................................................
What is clear is that more bids/asks are needed....
This requires a new world class securities exchange which makes the information boilerplate clear....and the transactions cost minimal along with the bid /ask spread....
Liquidity by itself ....which means "more traders" in the system will go a long way to promote a more vibrant economy....
A less clear, fragmented securities market with scant information and expensive trading costs to wide bid/ask and commission costs....will further crush what is already low valuations in a de-levered economy....
...................................................................
It's both....
What if most of the marginal corporate debt had no bid ?
In Asia....unlike the US....this is largely the case....
What if this happens in the US ?
.................................................................
The de-leveraging is largely to blame....and the elimination
of trillions in credit is a self fulfilling profecy to certain economic calamity....
................................................................
Who wants to hold on to a BBB credit for 5 years ?
.................................................................
The question being....
There is nothing to do but to watch it happen....
Why ?
Deleveraging.....the elimination of trillions from the marketplace....
...................................................................
In simple terms....
Before there was $70 Trillion in the box....Then over $30 Trillion
was eliminated....
Thus it is not possible for the value in the box to be over $40 Trillion....
......................................................................
The government is not going to replace over $30 Trillion with $800 Billion....
......................................................................
Thus welcome to the "new valuations" world....
....................................................................
So now the next error to be made is simple to view....
The government will try to increase a progressive tax rate on a diminishing earner base....which is taking more from less....
So how it is possible that the economy can improve ?
...................................................................
The fact of the matter is that the US government has to dramatically downsize as it will have to either change permanently to a 10% consumption tax only....or will bandaid on a temporay basis the current progressive structure to reflect the same revenue....Bandaids do not promote investment....
Any other avenue will result in dramatic increases in debt and monetization....
.................................................................
One should hope that the government will change prior to calamity rather than after calamity....
................................................................
What is clear is that more bids/asks are needed....
This requires a new world class securities exchange which makes the information boilerplate clear....and the transactions cost minimal along with the bid /ask spread....
Liquidity by itself ....which means "more traders" in the system will go a long way to promote a more vibrant economy....
A less clear, fragmented securities market with scant information and expensive trading costs to wide bid/ask and commission costs....will further crush what is already low valuations in a de-levered economy....
...................................................................