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U.S. Debt Watch: Paths to Repudiation

What I say applies to countries as well:

China should spend more, heck a LOT more, if it has the reserves to do so. Ditto to any country that still have capacity to do so on the balance sheets.

Anyone with excess resource, companies included, should buy and acquire resources, other companies, assets.

Not blindly, but buy if the need is there and the affordability is justified. Trying to time the bottom is NOT the way out of this. The bottom will form when there's enough buyers, not when there's enough waiters.

We need to FORM the bottom, not TIME the bottom.

U.S. Debt Watch: Paths to Repudiation

The key element I agree with this article is this:

"The process is already underway."

What makes you think that repudiation, either the process of, or the threat of, either gradual, or sudden, isn't the reason for the crisis we're witnessing? I on the one hand, believe it is one of the key reason for the behavior we see in the market.

Everyone knows repudiation is coming, and is trying to do trades to "escape" it -- whether by shorting, or by buying gold, or by stuffing money in mattress or by NOT LENDING or by not employing, by not spending, etc. These actions exacerbate the situation and is creates a self fulfilling prophecy in some ways.

So the key question is whether repudiation will actually solve the problem, or actually be the straw that breaks the camel back and crashes the system?

How can anyone be so sure that this is the "right" action to do?

I implore everything to think deeply about this. For if this is right, then the correct means to solve the jam is to fight the perception.

Remember, USA was on the brink of collapse in 1930's, and a true leadership call by the President to NOT withdraw money from the bank; and trust the recovery is one of the key actions that helped restore stability. People queued up to deposit money, and it really helped to unjam banks.

Perception is everything in an economy. In some ways, if everyone decides to hoard, no system can survive, not even gold, not even *RICE BASED* economies (Ancient China, trades rice as a currency.). It's a deadly spiral that punishes people who's NOT hoarding, so it seems to justify hoarding, which worsens the situation.

It's akin to society competing with each other to see who can starve the most. If I can starve more than you and you die, I laugh at the ones who died and feel morally justified to do so?!

I have savings, heck I'm one of the biggest savers in everyone I know in my circle, but I also realize this is not a crisis that can be averted by saving or being miser, or being "prudent" or being thrifty. For someone can always out thrift me, outlast me, and if this is the criteria and the trend, even my formidable savings will be exhausted one day.

Despite everything I disagree with Keynesian economics, one thing is true. Price is sticky on the way down (witness houses, salaries, pensions, benefits), which means trusting supply and demand curve to self adjust is a fallacy (you'll have to wait a LONG LONG time for prices to adjust, possibly longer than what you can survive through or what the system can survive through); for it can turn into a self fulfilling prophecy that wrecks the whole system.

Unfortunately, improvement in technology is making this worse: panic happen much faster, and more importantly: Employment and costs can be reduced ad nauseum, esp on the way down in terms of capacity. (Automating everything, don't even need to upgrade systems as output is down. You'll be surprised how little workforce you need to keep things running.) Computers and robots *can* do majority of work, esp if you reduce the need to upgrade and stay ahead.

Recognizing this is half the battle. I'm not trying to preach reckless spending and wild gifting; but we need to recognize the miser craziness going the other way too.

I want everyone to realize that we all play a part in making this WORSE, with every bit of action we do. If you postponed buying something you need and can afford today, it may cascade in a way that you may not be able to afford that thing you need soon.

The key is to draw a line in the sand, and spend anyway -- not recklessly, but also not give in to thinking you can save on a need and get yourself out of the crisis. It makes it worse.

Bond Expert: Thursday Wrap

1. The issuing of govt debt soaks up cash from the marketplace.
2. The reduction of cash supply in the market worsens our cash crunch and deflationary pressure.
3. The issuance of bailouts attempts to inject cash into the system.

It would seem to me that we have a schizophrenic govt; who, on the bond end, is sucking as much cash as it can get it's hand on from the bond market -- thereby causing a "drying out" of cash supplies. Then on the policy end, is frantically trying to prop up the economy by programs designed to inject cash.

Am I missing something?

Unless #3 is working on a much higher multiplier than the money lost from the system in #2, aren't the govt worsening the situation????

i.e. the only way this would work, is if for every dollar the govt spends in #3, the economy generates >$1 in economic activity. By all accounts and estimates, I'm hearing figures from 0.5 to 0.8 -- definitely less than one.

If this is true, then our govt is making the problem worse. Run the wash cycle I stated above a few more times and you'.ll guarentee the GD.

Homeowner Affordability and Stability Plan: Is It Really Good for Everyone?

I hope by now, everyone realize this has now become a triple circular negative spiral.

Spiral A:
1. Jobs are lost
2. Product Sales go down
3. Companies retrentch
4. Jobs are lost.

Spiral B:
1. Home sales & prices go down
2. Bank balance sheet goes down
3. Credit dries up further
4. Home sales & prices go down

Spiral C:
1. Credit dries up further
2. Companies retrench
3. Jobs are lost
4. Sales plunge
5. Companies balance sheet weakens
6. Credit dries up further

This is no longer a simple case of a price correction anymore. It has legs. it can reinforce on its own. This is what's feared as the deflationary spiral.

I understand that Obama's attempt seems unfair, moral hazard, too small, (insert your complaint).

But you have to realize, this spiral *IS REINFORCING* and can run to ruinous results for everyone! Mark my words, nobody is immune, even renters and job holders on supposedly "immune" industry, goldbugs and even if you're off the grid and have your own food and bomb shelter, you are not immune!

So judge and complain if you will, but until you get what I said, you're not understanding the magnitude of this crisis.

One thing Obama said is true. Doing nothing is not an option.

This can absolutely spiral down for a long ways. What is the absolute floor you ask me? The absolute floor is when everyone have nothing to lose. Think back to WW 2 era; or how everyone owns nothing in GD. That's the "floor" where the spiral stops naturally.

Think about this next time you wish for the spiral to resolve on it's own. Be careful what you wish for, for you may get it anyway. Any actions may prove futile.

A lot of people still think this is a regular recession and there will be cyclical bounce and rebound. An almost cult like subscription to "there is a rebound" idea. Which is why the best action is to sit back and let it resolve on its own... I'm sad that this train of thought reveals that these people do not realize the depth of this rabbit hole.

I don't know if the anything *CAN* be done to prevent this down crash, if everything we do will be futile, but "doing nothing is not an option" is indeed the correct philosophy to deal with such devastation.

What to Do with Freddie and Fannie?

Best way to burst a bubble. Let it go to the sky! Pile it on!

If oil prices become parabolic, then the end is near.

Because when oil owns everything else (i.e. everything else becomes worth-less relative to it), then who/what wealth is going to buy that "next barrel"? That is when it bursts.