Mad Hedge Fund ...'s  Instablog

I know what keep Obama awake at night. Let’s say we spend our $2 trillion and get a couple of quarters of weak 2% type growth. Then once the effects of the stimulus wear off we slip back into recession, setting up a classic “W” type recession. Unemployment never does stop climbing. So congress passes another $2 trillion reflationary budget. Everybody get’s new mass transit and alternative energy infrastructure. But with $4 trillion in spending packed into two years inflation really takes off. The dollar collapses, gold goes to $3,000, silver to $50. Ben Bernanke’s replacement has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 20%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $200. This is not exactly of low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 14.5%, and credit default swaps are at lofty levels. The risk of Armageddon is still out there. Just thought you’d like to know.