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London knows the game is up for USD.
- Thread starter Grandluxe
- Start date
I may have gotten a bit carried away.
but you should see some of the pork a few of my clients are lining up for.
businesses are increasingly shifting goals to govt contracting.
but you should see some of the pork a few of my clients are lining up for.
businesses are increasingly shifting goals to govt contracting.
Quote from jem:
I just saw what happened in Congress.
I have decided to try and become a crony.
I love the FED.
I will be ready for real estate to collapse once the hedgefunds sell out their recent buys to the public.
I will be looking for insider deals.
Quote from Ricter:
I'm not trying to say it's "no big deal" so much as I'm trying to say we're not "all gonna die!!1!!"
It's not fair to treat foreign liabilities as a monolithic block while treating foreign assets as merely the small part owned by government. What I mean is, not all US foreign debt will ever come due all at once, like it could if it were owned by one government. It's owned by organizations large and small, public and private, and (Chinese) mom and pop investors as well. Do you think these various governments, businesses, and citizens would really be able to coordinate a massive "pay us now" action? I don't. I'll concede that we can frighten the world enough to cause something similar, like crossing the debt ceiling. I don't think ability to pay according to the current schedule is a concern--yet. As for our foreign assets, last I saw they offset our liabilities by about 80%. To be fair, I don't think we could or would even try to coordinate a massive redemption, either. It's unheard of as far as I know. But, maybe that's really what some wars have been about, as some claim.
My real worry is that the true fundamentals will fail: the ability of the Earth to feed and water 7, 8 or more billion people. If we cross that line then no amount of haircutting and currency redistribution can fix it.
Your points about living conditions in Greece and Argentina are taken. It does get very hard in certain localities at certain times.
The problem with high foreign debt ownership, is once the uncle point is reached, capital flows out of debt (yields rise). It's not a coordinated event, no more then the Nazdaq crash or 2008 crash was "coordinated". When enough market participants get spooked, they head for the exits, not enough liquidity on the bid, which sparks a sell off. Selling begets more selling = crash. The uncle point is traditionally around 120-130% debt to GDP. When average interest on the debt (~2%) consumes avg annual economic growth (2-3%), the economy basically treads water to pay the debt interest, or contracts, which compounds the interest and debt payable. That's when investors head for the doors because they know there's only two outcomes at that point = deflationary spiral = depression = default. Or monetize and pay back in worthless dollars. Nobody wants to hold Treasuries and they spike 7-10%. That's a real problem, especially in this highly leveraged, debt-based economy.
As for assets, I'm sure you're referring to private and public assets on the books - largely real estate and financial securities held by the Government, private households and corporations. They don't count, unless Uncle Sam expropriates every other 401K and house in the country, and hands it over to China as a form of "payment". This again, bankrupts the country. Although, it's been tried and done before. Imagine the effect, if Obama seized the bank accounts, stock portfolios and real estate assets of every third citizen and corporation in some type of 'raffle' to pay off the national debt? How do you think that would effect national wealth? Home prices? the Stock market? It's no different than selling off california or whatever to make good.
The number I'm talking about is the total value of foreign denominated securities and currency owned by the Federal Government. This is an anchor that can be used to hold the dollar, in the event the Federal Reserve picks up the slack in the Treasury market, once foreigners dump and run. This is the same principle why the Yen never collapsed (JGB foreign ownership is extremely small and JG and JCB own a phenomenal portfolio of foreign securities). So there's no credible strain on the value of the Yen, despite their huge debt issuance and monetization.
I would suggest looking at Spain, Italian and Portuguese Government bonds, as that's what a default essentially looks like - slowly, at an accelerated pace, bond holders lose confidence in the nations finances, sell (ie "cash in") their bonds, which pushes yields higher, and forces the Government to roll over existing debt at a much higher, and unsustainable interest rate. When rates get to 6-7%, the game is over. While, if played out on a much longer time frame, a nation could hobble along at those rates, while slash and burning the budget, it doesn't work like that. Once 6-7% gets hit, the market knows this goose is cooked. The market is forward looking, and goes parabolic at 6-7%. Huge waves of selling. And it's all over. This exact situation has happened hundreds of times in history. We are not different. THere is nothing different here, except the size and scope of the American economy and the repercussions it'll have here, and around the world. This is what makes it so crazy and terrible. Portugal, Ireland, Iceland. These are nothing countries. Tiny, tiny of no significance. America is the number#1 economy in the world. WE are the king shit. If and when this economy goes down, it will be monumentally bad for everyone.
Quote from achilles28:
The problem with high foreign debt ownership, is once the uncle point is reached, capital flows out of debt (yields rise). It's not a coordinated event, no more then the Nazdaq crash or 2008 crash was "coordinated". When enough market participants get spooked, they head for the exits, not enough liquidity on the bid, which sparks a sell off. Selling begets more selling = crash. The uncle point is traditionally around 120-130% debt to GDP. When average interest on the debt (~2%) consumes avg annual economic growth (2-3%), the economy basically treads water to pay the debt interest, or contracts, which compounds the interest and debt payable. That's when investors head for the doors because they know there's only two outcomes at that point = deflationary spiral = depression = default. Or monetize and pay back in worthless dollars. Nobody wants to hold Treasuries and they spike 7-10%. That's a real problem, especially in this highly leveraged, debt-based economy.
As for assets, I'm sure you're referring to private and public assets on the books - largely real estate and financial securities held by the Government, private households and corporations. They don't count, unless Uncle Sam expropriates every other 401K and house in the country, and hands it over to China as a form of "payment". This again, bankrupts the country. Although, it's been tried and done before. Imagine the effect, if Obama seized the bank accounts, stock portfolios and real estate assets of every third citizen and corporation in some type of 'raffle' to pay off the national debt? How do you think that would effect national wealth? Home prices? the Stock market? It's no different than selling off california or whatever to make good.
The number I'm talking about is the total value of foreign denominated securities and currency owned by the Federal Government. This is an anchor that can be used to hold the dollar, in the event the Federal Reserve picks up the slack in the Treasury market, once foreigners dump and run. This is the same principle why the Yen never collapsed (JGB foreign ownership is extremely small and JG and JCB own a phenomenal portfolio of foreign securities). So there's no credible strain on the value of the Yen, despite their huge debt issuance and monetization.
I would suggest looking at Spain, Italian and Portuguese Government bonds, as that's what a default essentially looks like - slowly, at an accelerated pace, bond holders lose confidence in the nations finances, sell (ie "cash in") their bonds, which pushes yields higher, and forces the Government to roll over existing debt at a much higher, and unsustainable interest rate. When rates get to 6-7%, the game is over. While, if played out on a much longer time frame, a nation could hobble along at those rates, while slash and burning the budget, it doesn't work like that. Once 6-7% gets hit, the market knows this goose is cooked. The market is forward looking, and goes parabolic at 6-7%. Huge waves of selling. And it's all over. This exact situation has happened hundreds of times in history. We are not different. THere is nothing different here, except the size and scope of the American economy and the repercussions it'll have here, and around the world. This is what makes it so crazy and terrible. Portugal, Ireland, Iceland. These are nothing countries. Tiny, tiny of no significance. America is the number#1 economy in the world. WE are the king shit. If and when this economy goes down, it will be monumentally bad for everyone.
I think that having a lot of foreign reserves means a lot to confidence, for sure, and would go a long way to preventing runs, but the ability to print money to buy up all the bonds for sale, which japan has, and spain and italy doesn't have, would mean a whole lot more if the shit hit the fan. The fed has done everything but run a sign behind an airplane to tell us they'll buy up every loose bond in sight. It would trash the dollar, but if the fed owned almost all the bonds, they could set interest rates at anything they wanted to. We have negative real rates right now. They can buy UNlimited amounts of bonds, and after what we've seen the last five years and more, i wouldn't doubt for one second that they would actually do it. And that's partly what this thread is all about. Other countries realizing the fed is nuts and will buy everything and therefore, they want out of the dollar.
It's all just opinion, so i'm not really wanting to argue about it if you have a different opinion. That's just mine.
Brothers, here's what I'm worried about.
I can't eat a bond or a dollar.
But, I do eat bread.
What do you think a loaf of bread will cost in about 5 years?
About 42, 45 dollars?
Maybe they'll start selling it by the slice.
Of course, there will be bread slice subsidies for the poor, so expect to pay more taxes if you're rich.
"Rich" in 5 more years will probably be considered anyone making over 10,000 dollars a year.
I can't eat a bond or a dollar.
But, I do eat bread.
What do you think a loaf of bread will cost in about 5 years?
About 42, 45 dollars?
Maybe they'll start selling it by the slice.
Of course, there will be bread slice subsidies for the poor, so expect to pay more taxes if you're rich.
"Rich" in 5 more years will probably be considered anyone making over 10,000 dollars a year.
Quote from fhl:
I think that having a lot of foreign reserves means a lot to confidence, for sure, and would go a long way to preventing runs, but the ability to print money to buy up all the bonds for sale, which japan has, and spain and italy doesn't have, would mean a whole lot more if the shit hit the fan. The fed has done everything but run a sign behind an airplane to tell us they'll buy up every loose bond in sight. It would trash the dollar, but if the fed owned almost all the bonds, they could set interest rates at anything they wanted to. We have negative real rates right now. They can buy UNlimited amounts of bonds, and after what we've seen the last five years and more, i wouldn't doubt for one second that they would actually do it. And that's partly what this thread is all about. Other countries realizing the fed is nuts and will buy everything and therefore, they want out of the dollar.
It's all just opinion, so i'm not really wanting to argue about it if you have a different opinion. That's just mine.
You're exactly right. But I can only include so much information in one post, before I lose people.
If and when foreigners dump Treasuries, the FED will mostly likely prop up Treasuries to prevent a major depression/crash > dollar collapses and loses reserve status. That's how it plays out. A dollar collapse will be much worse than just a depression, because theres a huge premium built into the value of the dollar, from reserve status itself!!! People don't get it. Prices will jump 100%-200% within a couple of weeks. Wages will stay the same. Business will plummet. That's it. That's how it works.
Good post, time well spent. Cautious optimism is where I sit. Maybe hopeful pessimism is where you're at.Quote from achilles28:
The problem with high foreign debt ownership...
Just saw this, front page of Reuters. Right on topic:
As U.S. averts default, Japan and China brace for next dollar drama
By Wayne Arnold and Leika Kihara
HONG KONG/TOKYO | Fri Oct 18, 2013 7:35am EDT
"(Reuters) - Deal or no deal, the U.S. Congress' dance with default impressed policymakers and investors in China and Japan with just how vulnerable their own economic revival plans are to the next political tantrum on Capitol Hill.
"The 11th-hour agreement on Wednesday between Congressional Republicans and Democrats to raise the limit on U.S. government borrowing and end a 16-day government shutdown also averted a default on U.S. Treasury bonds that had threatened the global economy and financial system.
"But Congress gets another chance to hold U.S. creditworthiness hostage early next year ahead of a new February 7 deadline to approve a debt ceiling increase.
"We're glad a deal has been struck," said a Japanese policymaker, who spoke on condition of anonymity. "But the uncertainty will remain and it will be the same thing all over again early next year."
"He and other Japanese officials say they have already developed contingency plans that include flooding Japan's banking system with cash to keep markets functioning however panicked investors become. And analysts say China, whose Communist leaders are due to hold a key policy meeting next month, may step up a push for global acceptance of its currency, the yuan or renminbi, as an alternative to the U.S. dollar in international trade.
"They might actually consider accelerating the process," said Vincent Chan, head of equity research at Credit Suisse in Hong Kong. "You strengthen the case of making the renminbi a genuine international currency, because the Americans are unreliable."
"NEAR-DEBT EXPERIENCE
"Perhaps no two economies outside the United States have more at stake in Washington's recurring drama than Japan and China.
"Not only are they the second- and third-largest economies, "
More>>
Ricter, I agree with you - plenty of reasons to be hopeful; much to public dismay, Treasury and FED officials do understand the economic landscape, the ingenuity of the American entrepreneur, and altho conspiratorial, advanced tech withheld by the US military via black research projects etc. The very technology that could rescue us, I believe, already exists. And has existed for a long time. That's a glass half full or half empty argument, depending on perspective.
Every fiber of my being wants this to work out. Doomsaying is boring and depressing. But. But. But. We will see. I'm going to prepare for the worst, hope for the best. When the Reminbi freely converts, if it happens, it'll be after that point. And probably shortly after (within a couple years).
Every fiber of my being wants this to work out. Doomsaying is boring and depressing. But. But. But. We will see. I'm going to prepare for the worst, hope for the best. When the Reminbi freely converts, if it happens, it'll be after that point. And probably shortly after (within a couple years).
Quote from achilles28:
See that number in the top left hand of the picture? Total interest?
That and offshoring are the number#1 and #2 reasons why the US economy isn't growing.
~16% of the nations GDP goes towards paying interest on money created out of *nothing*.
It's like a gigantic boulder tied around our necks, sapping us of all our energy and productive resources.
Remember how Ron Paul talked about 'too much debt in the system'? That's what he meant. The vig is killing us.
We need a depression to destroy much of that debt (and therefore, interest), before we can begin anew, and cast off that millstone that's killing us.
Bankers control things, which is why it hasn't happened.
This is a banker controlled economy. Look, the Bankers are rent seekers, collecting 16 PERCENT of our GDP, every year, for doing NOTHING. This is why we suffer.
I disagree. The reasons the U.S. Economy isn't growing very much on a relative scale is that the country is both large and developed and is still in the process of shaking off the deepest recession since the Great Depression. Overall Growth for the U.S. economy in the Twenty First Century will be at a noticeably slower pace than in the Twentieth Century. That includes the S&P of course.