lance sjogren

U.S. Treasuries in a Bubble, Not Commodities

I agree there is a bond bubble. However, so long as the US is committed to artificially depressed interest rates I see no reason why bonds will collapse in nominal value.

The bond bubble will burst GRADUALLY, the mechanism being that an annual devaluation of the dollar of 10-15% over the next 4-5 years will cause the inflation-adjusted value of bonds to drop by about 70-80%.

Dow 3700, $3,500 Gold, $300 Oil - Enough Already

Near term predictions of oil at $300 per barrel are foolhardy.

Longer term, on a timeframe more like 5-10 years, there are some good arguments as to why such prices may occur, the writings on for example theoildrum.com provide good arguments for that.

Gold at $3500, similar situation. Near term, very doubtful. What about longer term? We will have $2 trillion per year deficits, if one believes that will NOT revive the economy then Obama's claim that the deficits will go down won't pan out, especially not with a Congress that is like a kid in a candy store insofar as the economic downturn providing a rationale for pursuing their social spending wish list to the extreme.

With $2 trillion per year deficits, I believe the US dollar will be losing about 10% of its value per year. Of course, it will be somewhat difficult to quantify because you can't use other currencies as a benchmark, they also are likely to be greatly devalued in the coming years. The best gauges are probably money supply and precious metals.

If the dollar loses 50% of its value in the next 4-5 years, then nominal value of gold will be about $1800 US dollars. Of course, it has some volatility relative to the US dollar, so fluctuations might carry it down to $1200 or up to $2500 or so.

What about the subsequent 5 years? If we have not succeeded in printing our way into prosperity, i.e. if the economy is still in the dumps, one could argue that the public will not tolerate the economic authorities squeezing the economy with higher interest rates in order to stop the rampant inflation. If the inflation continues unimpeded, then the dollar could lose yet another 50% of its value in the next 5 years.

Thus, for gold to be straddling an equilibrium value of US $3500 10 years from now is quite possible.

I'm not saying that is a likelihood or a certainty, but it is a highly plausible scenario.

However, I think the author is right as far as those high predictions for gold and oil are implausible in the time frame that was hypothesized.

They won't be at that level in 3 years. They may possibly be at those level in 10 years, however.

As to the Dow, who in the heck knows. 3700 hardly seems implausible considering the dow has already had a greater than 50% drop and the economic downturn is still intensifying. However, just like with the other predictions, the author is right that there should be some rational argument made in support of predictions, they shouldn't just be a means for someone to get publicity.

Dow 3700, $3,500 Gold, $300 Oil - Enough Already

"The sky is falling, the sky is falling!"


Yeah, it's pretty ludicrous for people to make dire economic predictions considering what a booming economy we have.

Let's Just Say It: Print More Money

Another reason inflation provides the prospect of an orderly lowering of the standard of living in the US. (which I have pointed out is inevitable)

With high unemployment, wages are not going to go up much over the coming years.

Thus, in the face of substantial inflation, real wages are going to decline in the coming years.

That is unfortunate for the wage earner, but the point is to object to it is like objecting to the sun coming up in the morning. It is an inevitability.

Inflation is the best solution for an orderly downsizing of the United States of America.


One other point: Forget about the US remaining the world's superpower. As we become an economy more on the scale of Indonesia or France, we will no longer be able to sustain a superpower level of military power. Unless we can establish a new role of the US as the "soldier of fortune" to the world. That would mean that we would no longer be spending vast sums of our own money for military ventures that the rest of the world doesn't want us to be involved in. It would mean we would shut down our military involvement around the world, and tell countries that we are happy to sell security services to them.

Face it, that is about the only thing the US is still good at, military. It is ridiculous for an economic basket case to be going out spending our own money on deploying those resource, especially when no one else in the world supports what we are doing.

But, the fact is we have been the glue that has kept the world from breaking up into regional wars all over the place. I wouldn't be surprised if many countries in the world, after discovering what a precarious situation they are after we pull back from military involvement around the world, decide it is worth it to hire us to provide them security services.

Lots of details to work out of course, like which governments would we refuse to work for on account of their human rights record or whatever.

(most likely, as the US economy deteriorates further, public opinion will say- hey I don't care if it's Idi Amin, anyone who is willing to pay us, let's work for them and provide some jobs for US soldiers.

Let's Just Say It: Print More Money

Glen:

Inflation will help solve the social security and medicare problems.

The spending on those programs goes up, but if inflation is high the spending will not go up as fast as inflation.

(keep in mind that the way the govt now calculates inflation gives inflation figures that substantially understate actual inflation)

Thus, with a high inflation level, real spending on programs on Medicare and Social Security will go down. Of course, that will mean that the medical services received by Medicare recipients will decline, and the real spending power of social security checks will diminish.

But so what? Because of the hole the US has dug itself into economically, there is NO SOLUTION that will not lead to a declining standard of living.

Inflation seems like the most obvious way to implement that economic decline in an orderly manner, since government clearly lacks the ability to make hard choices in cutting less justifiable programs in order to keep its higher priority programs intact.


INFLATION IS THE ANSWER.

Let's Just Say It: Print More Money

Count me in. Let's go for the hyperinflation solution.

My gold and silver stocks should do well.


What will be the long-term effect on the economy? Probably some good and some bad. The fact is, the US is in debt beyond its ability to ever repay.

There are two choices, chapter 11 for the United States of America, or inflate until our debt is diluted to a manageable level.

Our creditors may not like the inflation solution, but they should appreciate the fact that they are better off getting some of their money back that have the US go into default, such that the creditors lose everything.

As they say, if you are a small debtor having a hard time paying your debts, you are in trouble. If you are a big debtor having a hard time paying your debts, the bank is in trouble.

The US is the biggest debtor ever. You can't squeeze blood out of a turnip. Inflate or default. Those are the only options.

A Depression and Recovery in Internet Time

patio said:

"His conclusion was that fiscal and monetary was entirely impotent- velocity delines regardless. That is exactly what we have seen so far, and I expect will continue. Companies and people struggle to re-pay debt, with harder to earn dollars, savings rise, consumption plummets.
What about current fiscal policy can force lenders to lend, and borrowers both WANT and are ABLE to borrow?
Governments cannot possibly spend their way out of a debt-induced depression, it will only make things ultimately worse."


What you say makes a lot of sense to me. In fact, even though I believe the dollar is going to devalue bigtime over the coming years, I'm not at all sure that will lead to generalized inflation. If unemployment is high, I can't see wages rising much even if the dollar is being devalued by the government. If wages don't rise, things like real estate won't go up in price, since the only way people could more easily afford to buy homes is if their wages go up.

However, one big question is: If the government (for the purists- the Fed, the government's unaccountable Frankenstinian monetary wing) drastically expands the money supply, then were is all that extra money going to go?

Well, I guess the most positive aspect is that some will wind up as wages of those funded by the stimulus programs, the people building bridges, etc. Hopefully that will mitigate the rising unemployment rate somewhat.

But what about the rest of the new flood of dollars? What happens to them?


My guess is we will see a mixed bag of deflation remaining in some sectors and inflation occurring in others. I believe for example real estate will remain depressed in price, while commodities will go back up.

A Depression and Recovery in Internet Time

Smarty:

Excellent rebuttal to the article.

Furthermore, in the game of chicken that you point out the author of the article believes is the foundation for the global economic future:


Contrary to the author's claim, I think the holders of US dollars know full well that there is a huge risk of massive devaluation of the dollar.

And holders of US dollars know that the only way to keep the dollar afloat is if EVERYONE continues to treat the dollar as a gold standard.

But, the reality is, they all have a vested interest in doing the exact opposite. If the dollar is destined to collapse, as I believe it is, those who dump their dollars first will come out the best.

So I would not be surprised if the collapse of the dollar, instead of being a gradual devaluation of 10-15% per year over the next 5-7 years, may happen almost instantaneously. In other words, a global run on the bank to pull out of US dollars.

A Depression and Recovery in Internet Time

I fail to see the logic in this guy's contentions.

Yes we are flooding the world with dollars and the world is sopping them up.

The dollar is a temporary safe haven while the turmoil is underway. Hedge funds and others that have to unwind derivatives must do so in US dollars, hence they need dollars once now.

Once this financial turmoil abates, why would people want to continue to hold US dollars?

Also consider, China has bought up a huge amount of US dollars. Right now China is caught in the economic downturn just like the US. China, however, has money in the bank to spend on stimulus. Why would China not redeem its US Treasuries in order to fund domestic consumption and infrastructure work to offset the dropoff in their exports caused by the recession in the developed countries?

I think the reason financial gurus are so consistently wrong is that they need to exercise their hifalutin education by making things far more complicated than they are.

The more dollars there are, the less they are worth.

This is about as close as you can get in the world of economics to a fundamental law of physics like gravity.

Letting the Reinflation Genie Out of the Bottle

Simple accountant said:

"Perhaps better to preserve capital or make small gains in a stable economy, than to make occasional windfalls in an unstable one."


Agreed, the only problem is, we don't get to choose between a stable and unstable economy. The economic gurus make that call, and they are clearly (and have been for years) opting for an unstable one.

In fact, even if they changed their mind at this point, I think we are far beyond the point of no return.

The Chickens Come Home to Roost, But Have We Really Learned from Our Mistakes?

notsosmart:

Also, gotta be careful about getting mercury poisoning.

The Chickens Come Home to Roost, But Have We Really Learned from Our Mistakes?

If you have several hundred thousand dollars of savings for retirement you are trying to protect, how practical is it to invest that in cans of tuna?

The New Normalcy

User guy:

The Bush admin deserves a whole lot of the blame, but the seeds of the disaster were planted in Woodrow Wilson's administration, with the estabilshment of that corrupt government-sponsored banking cartel known as the Federal Reserve System.

In fact, Bush is a whole lot like Woodrow Wilson except the authoritarianism in the Bush admin that leftists always complain about is small potatoes compared to the jackbooted authoritarianism of the Wilson administration.

10 Signs of a Recession

As for my message to Barack:

Just don't give us this BS that a program to develop renewables constitutes an energy policy.

People complain that drilling will take 10 years to get oil. Yes. And R & D on renewables will take at least 50 years before they can realistically be expected to provide most of our energy.

What do we do until then? The things that might address that are:

1). Aggressive production of conventional energy sources
2). Aggressive pursuit of conservation. Some may not be fun. We may have to give up automobiles. Still, it beats alternative 3.
3). Our society simply dies off for lack of energy. Problem solved.

10 Signs of a Recession

Whoops, got so carried away with my frozen nuts concept that I forgot the rest of the energy program:

3). more nuclear plants

4). Drill, drill, drill for oil

5). As far as questionable future sources such as biofuels and hydrogen- their shortcomings will probably mean they never amount to much but we should still do a little bit of research, who knows we might come up with something. Biofuels will probably have a small role in the future to power military jets and air travel for rich people.