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View Full Version : Mission Accomplished – Part I: Wrecking the Economy - Eric Janszen



EJ
09-18-09, 04:02 PM
http://www.itulip.com/images/missionaccomplished300.jpgMission Accomplished – Part I: Wrecking of the world’s greatest economy

When the people lose faith, they do not then believe in nothing. They believe in anything.

For a change of pace, today we present our two-part analysis as an interview of yours truly by an old friend of iTulip who has reported for several major news publications for more than 20 years. Our interviewer goes by the initials ND. If readers like the format, we’ll do it again.

ND: Do you miss the old Hunter Thompson as much as I do?
EJ: Last week I listened to a recording of a lecture he gave at Boulder University in 1977 after he published Fear and Loathing in Las Vegas. At one point a student in the audience asks if there is anything that he as a young person heading out into the world can do to help get the U.S. off the self-destructive course that Thompson describes in his book. Thompson is fatalistic. He says, no, there is not, that the crazed system is destined to go on and on until it blows itself up and burns itself out. Looks like he was right.

ND: We blew it. The media, I mean.
EJ: We use this catch phrase at iTulip: “Who could have known?” to refer to any obvious outcome of excess and fraud over the past 11 years that we've been in operation. Anyone reading our site—and plenty of others—since 1998 could see the current crisis coming down hard on us, but not if they only read mainstream papers or watched cable or network TV. After a string of failures to protect the public from cheats, crooks, and liars—the primary role of the media—a cloud of suspicion hangs over the whole industry. On top of the business model challenges created by the Internet, there’s a real crisis of credibility. Today they’re backpedaling as hard and fast as they can, and maybe readers will forget that the media hung them upside down to have their pockets picked by mortgage brokers and stock jobbers selling the American dream as a debt they can’t repay and a stock portfolio that vaporizes as soon as they reach retirement age. It's a safe bet they will forget.

ND: Who’s doing a good job today?
EJ: The Wall Street Journal is doing a good job of covering the crisis now that it’s here. Plenty of thoughtful skepticism about the recovery. But the fact remains that the savings of a generation of our middle class was wiped out by the stock and housing bubbles. Failure by the media to expose the frauds while they were being perpetrated has caused millions to lose faith in the mainstream media.

ND: Who will take its place? Glenn Beck and Alex Jones?
EJ: The average American doesn’t know how to be intelligently skeptical. They lack the tools. Their schooling taught them to believe what they read in the paper and watch on TV and are told by anyone in a uniform or anyone who makes more money than they do. For example, the mortgage broker in a suit who told them not to worry about exaggerating income in order to qualify for a ridiculously huge mortgage. You can say these people were stupid for trusting the brokers and the appraisers and the lawyers and all of the other conspirators to the gigantic fraud that came to be known as the housing bubble, including the media that used to quote the National Association of Realtors as a source of information about the safety of housing as an investment. That’s journalism? But who is the public supposed to trust? No one? So now the public doesn’t trust anyone. Why should they? But in the wake of these frauds they lack the tools necessary for critical evaluation of even the most basic data about their economy, never mind complicated issues like monetary policy, inflation, and employment. In this environment guys like Glenn Beck and Alex Jones thrive.

ND: Where is this headed?
EJ: When the people lose faith, they do not then believe in nothing. They believe in anything. Between an oligarchic government controlled media and a public unable to distinguish between an argument made on evidence and one based on speculation, I believe we are heading into an era of rising nationalism and unreason unlike anything we have seen since the 1930s. The antecedents are exceedingly dangerous. Our polity can be whipped up into a frenzy to do just about anything.

ND: Where is the leading edge of rising nationalism?
EJ: Japan just elected the first government since the end of WWII that represents a break from alignment with the U.S. The election was a big deal in Asia. The winning platform was distance from Washington and separation from Wall Street.

ND: Japan was hit especially hard by the global recession that we caused.
EJ: True, but it’s important to remember that our economic relationship with Japan has been difficult since at least the Kennedy administration.

For U.S trade partners like Japan, the U.S. has been like a very large and important customer that delivers most of the revenue to a goods manufacturer. Endlessly demanding, at times irrational and occasionally dangerous, our behavior was tolerated for one and only one reason: we, the customer, always placed our order by the end of the quarter. All was forgiven.

Then the 2008 crisis came. We, as a major customer to our global trade partners, have always been difficult to do business with, but at least we were worth it for the orders, even if they had to provide much of the financing. But since U.S. consumer demand for imports fell off a cliff last year, we’re not worth the trouble.

http://www.itulip.com/images/importsexports1960-Sept2009.gif





Yet our demanding and irrational behavior continues as if we were still the world’s most important customer or we will regain that status shortly, if only we print and borrow enough money to get households borrowing and buying again. The perpetuation of this delusion will end in tears.

ND: What did we do to Japan under the Kennedy administration? I don't remember that.
EJ: In my research I came across a reference on Sony Corporation’s web site that stated that Japan's 1965 economic depression was rooted in the interest equalization tax instituted two years earlier by President John F. Kennedy. The U.S. economy was in recession and domestic capital was pouring out of the country. Kennedy imposed a 16.5% interest equalization tax on all capital leaving the U.S. to slow the outflow--basically, a capital control. The law succeeded in decreasing the outflow of U.S. capital but it also caused a panic in world stock markets. In 1965, Japan’s securities market crashed and Japan had its worst depression since The Great Depression.

While it’s tempting to see events like the election of an anti-U.S. government in Japan as a recent development, the issues between the two countries that led to that outcome have been brewing for decades. The 1980s bubble and crash was also a product of U.S. policy. Political change, such as shown in the election of a new government in Japan, appears sudden if you haven’t followed the history and antecedents.

After this latest U.S. financial and economic debacle that cratered Japan’s economy, the Japanese people decided they’ve had enough.

ND: Who’s next?
EJ: Hard to say but my contacts tell me nationalism is rising in China in parallel with the decline of the Chinese economy. There are over 20 million officially unemployed and another 20 to 30 unofficially. There is a good video on the front of the site on the current unemployment crisis in China. Nationalism is a powerful tool of government to use to externalize blame for domestic governance mistakes. The CCP has used it in the past and there is no reason to think they will not use it again.

But the political shift away from the U.S. motivated by the global crash is not confined to Asia. I strongly recommend reading the August 24, 2009 letter Farewell America by Swiss investment bank Wegelin & Co. The letter reveals how much of Europe sees us as well, and will express if they calculate that the costs of a future business relationship outweigh the benefits. Here's an excerpt:
At the risk of once again winding up certain specialists in business ethics, let us briefly recall the sort of tax authorities we are dealing with, and the sort of state they serve: a country that, over the last 60 years, has unquestionably been one of the most aggressive nations in the world. The USA has fought by far the largest number of wars, sometimes with, but mostly without a UN mandate. It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs, with serious consequences both abroad (Columbia, Afghanistan) and at home (according to reliable sources, the tentacles of the narcotics mafia now reach well into political circles).

With breathtaking moral duplicity, the USA maintains enormous offshore havens in Florida, Delaware and others of its states. The moralizers have joined sides with a nation that still makes extensive use of the death penalty, and that has a legal system under which lawyers can get rich on the misfortunes of their clients. Liability cases often end in verdicts with exorbitant damages, which makes business activity extremely risky, for medium-sized enterprises in particular. The moralizers provide intellectual support for a country that allows its infrastructure to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently dubious proceedings. They fund a nation that tolerates – or rather, causes – regular crises in the global financial system that it manages.

A country whose underclass enjoys neither the benefits of an adequate education, nor a halfway functional healthcare system; a country whose economic system is increasingly inclined to over-consumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind the current recession, with all its catastrophic consequences for the whole world.
Read it if you want to know how a former "supplier" to USA, Inc.--in this case of specialized banking services--thinks of us but was not willing to say to our face before they gave up on us as a future customer. We've been written off. Think about it. We post the letter as a resource at the end of Part II.


http://www.itulip.com/video/shockedgambling.mp4





Keep in mind that next year is an unusually active election year world wide, with more than 60 presidential, legislative, and parliamentary elections scheduled. If repudiation of political and financial relations with the U.S. takes off as a key election platform, it’s bound to have an impact on us. If nothing else, it makes U.S. debt much harder to sell overseas and foreign direct investment more difficult to attract.

ND: In light of that, can we devalue the dollar? I've heard rumors.
EJ: We can’t make any of the kinds of unilateral decisions we were able to make in the past when the U.S. was a net creditor, such as devaluing the dollar or imposing capital controls. If we tried to do any of that today we’d collapse our bond market and the dollar.

ND: You have stuck with a long-term forecast of inflation through two deflation scares, one in 2001 and another in 2008. How were you so sure we'd escape another deflationary era like the the 1930s?
EJ: We did a lot of research in 1998 and 1999, followed the process for over ten years, and tried to learn from our mistakes.

ND: What kind of mistakes?
EJ: In 2000 we did not completely accept the dedication of monetary authorities to act to halt asset price deflation in the FIRE Economy before it spills over into the Producer/Consumer Economy. We never doubted their ability, only the willingness to take it as far as they did because of the risks. To believe the Fed has limits is to not understand how modern credit and money work, or the relationship between asset prices and goods and services prices.

ND: For example...
EJ: The Fed adds $1 trillion one side of the balance sheet and puts $1 trillion in asset-backed securities on the other. Where is the constraint? What's going to stop them? The Fed doesn’t have to back any of it with gold anymore as it did in the 1930s.

ND: So the deflationists just learned a principle that you learned seven years ago.
EJ: Heading into the 2001 recession we were skeptical that the Fed was prepared to use all of the expansionary tools and methods available to it. We thought we'd see dissent on the board and philosophical arguments against doing it. We used to track who's who on the FOMC, dove and hawk, to see if maybe an anti-inflationist voice sang there. But Greenspan is 100% opportunist whose guiding principle of operation was self-interest wrapped in Ayn Rand idealism. He didn't manage by consensus but by fiat. He dropped rates to 1% and let the mortgage market run amok for years on end, he thought to save his reputation.

Starting in 2003 the Fed issued a dozen papers that we used as the basis for our forecasts starting in 2006. When I was working for Trident Capital in 2005, I prepared an economic forecast for the firm’s annual planning meeting. It forecast a housing market crash, credit crisis, and massive recession within three years, but without a deflationary outcome. (A Managing Director there who I worked for generously gave me permission to share it with subscribers, provided I mention that Trident underwrote the research. The presentation is available as a resource at the end of Part II.)

Starting in 2002, representatives of the Fed repeatedly stated in reports that if faced with asset price deflation the Fed planned to print money and buy assets. And that is just what they did. As a result, a deflation spiral was averted.

http://www.itulip.com/images/deflationover2000-Sept2009.gif





ND: So you were right about deflation. But where’s the inflation? Summarize your inflation forecast for us.
EJ: The primary source of inflation we forecast last year will result from currency depreciation. After a nine-month to one-year lag, we are seeing cost-push inflation from rising energy costs, especially oil. The second key source is supply destruction caused by industry consolidation through mergers and bankruptcies. The surviving firms will have enough pricing power to pass on the higher input costs that the Fed created when it put a floor on commodity prices with its anti-asset price deflation policies. The third source is the money supply itself, which after a lag will begin to feed into prices by Q1 2010 at the latest. There are others, but those are the main ones.

ND: In Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide (http://www.itulip.com/forums/showthread.php?p=95409#post95409) you said you thought investors buying 10-year Treasury bonds that earn 4.5% today are just as wrong about long-term future inflation as investors in 1980 who did not want to buy 10-year Treasury bonds that earned 15%, but for the opposite reason. In 1980 they were underestimating the willingness of authorities to stop inflation. Today they are over-estimating the authorities’ ability to tame inflation in the future. Do I have that right?
EJ: Bond markets have a poor record for forecasting future inflation at major geopolitical turning points. The last time this happened OPEC clouded the picture. This time domestic debt deflation and dubious economic reporting from China, our largest trade partner, and creditor are throwing everyone off.

We have a chart we update regularly called the Everyone is Wrong Again chart.

http://www.itulip.com/images/everyoneiswrong1978-Sept2009.gif





The long-term correlation between inflation expectations and CPI one year later has been strong since the University of Michigan began the survey in the 1970s. Yields on 10-year Treasury bonds also track well—except at major turning points in monetary and trade policy that impact the dollar such as in the early 1980s and today.

In 1980, a decade of inflation caused a general loss of confidence among foreign and domestic investors in the institutions that were capable of executing the necessarily politically painful changes needed to bring inflation under control. Today we have the different problem. Today investors believe that central banks are capable of executing on any plan they lay out before us. It’s odd because Paul Volcker himself said as recently as a few months ago, before the administration shut him up, that he could never execute today the kinds of policies that the Fed followed under his leadership, because the U.S. is a net debtor. Like Argentina, the U.S. no longer decides its economic policies independently. We gave that up when we took on all of the foreign debt. Every decision needs approval from foreign governments and institutions.

ND: Foreign lenders approve of inflationary policy?
EJ: They tolerate it with complaints. Policy is inflationary because in the short term nominal growth is better than no growth, and we need to attract capital. No growth is not an option; that's death for a net debtor. Now we're being asked by our creditors to raise taxes and cut our deficits, as if we were Argentina owing money to the IMF, because it looks like the slow growth will drag on. One thing leads to another.

ND: How do you see inflation in that graph above? It shows CPI inflation diving.
EJ: Yes, and you also see both 10-Year bond yields and inflation expectations rising. Not since the 1980s have we seen this kind of divergence, with inflation expectations and bond yields going in one direction and inflation in the other. There are two possible outcomes. Either bond yields and inflation expectations are wrong and reverse, or inflation will soon turn around and catch up with bond yields and inflation expectations. We’re betting on the latter. So are the commodity markets.

ND: Where will we see inflation show up first?
EJ: It already has, all around us in its all its nefarious forms. Most people thought that when the inflation started this year—the inflation that we forecast last year to start in the second half of this year—it would arrive with fanfare, with interest rates spiking up and double digit increases in food prices. Interest rates are rising gradually, as are some producer prices, but nothing dramatic. So far it's a slow grinding away of purchasing power.

Inflation is the erosion of the purchasing power of income and savings. It can result from many causes. A decrease in supply of goods relative to demand or an increase in the supply of money relative to demand, to name two. This way of looking at inflation takes into account currency depreciation, productivity gains and losses, and the distribution of personal expenditures on domestic and imported goods and services. The inflation question is, What can your income and savings buy today compared to last year?

ND: What costs more?
EJ: Incomes have steadily deflated against energy since 2003. The average savings account, earning 2% or so over that period, has been losing purchasing power, too. Savings held as gold and silver has for more than eight years maintained domestic and international purchasing power better than savings in stocks, bonds, and CDs. It's a sad testimony to the mismanagement of our economy, but there it is for all to see.

ND: Why is the purchasing power of our currency falling?
EJ: It’s easy to over-think the issue. I’m a businessperson. I think of the U.S. in business terms, as a business enterprise USA, Inc. I think of the dollar as representing a common share of that corporation. Its value is ultimately determined by the decisions of management, our elected officials. If they conduct the business badly—dilute shares, make decisions that cause the company to be less competitive, take on too much debt, and so on—the value of a share inevitably declines.

ND: How fast? Do you see a dollar crash?
EJ: Mostly a currency declines slowly as a result of an accumulation of errors over decades. Policies that led to decisions that were politically expedient in the short term result in long term structural impediments to growth. Through the 1960s and 1970s, spending on the Vietnam War and Great Society programs, a wage price spiral enabled by contractual wage price adjustments, and a weak geopolitical position with oil producers caused imbalances to build up and become self-reinforcing. Eventually a radical structural reset was needed, the kind the Reagan administration pulled off. To make a long story short we borrowed trillions of dollars to do in the Soviet empire. A new set of imbalances developed. Now we are heading toward a new reset. The difference is that we called the shots last time. This time our creditors will call the shots. If we want to go it alone we have to be prepared to see the dollar crash.

ND: What are the chances of that occurring?
EJ: There will be a reset. You can count on that. Our external debt will not double every five years ad infinitum to paper over our structural deficiencies. The ticking time bomb of foreign debt will run down sooner or later. The question is, Does a framework exist to defuse it? Is there time? I’m not as hopeful on this as I once was.

To begin with "management" needs to take on the politically difficult task of confronting the major source of our difficulties, inflated housing prices, the scene of the crime as it were. We spend three times more of our income every year on housing than we did 60 years ago. An automobile costs less of income but is 10 times better than 60 years ago. Food costs less, and our food supply is far safer than it was 60 years ago, despite what you might read. In fact, every other personal consumption expenditure—except for insurance and education—consumes either the same or less of our income than 60 years ago. Yet housing costs three times more. Has housing has improved as much as automobiles have over the same period? Of course not. They have been inflated by credit because mortgages were subsidized by government.

We need to undo the impact of decades of government subsidies of the housing industry. But I don’t see it happening. Where will the political will come from to do it when millions of home owners are complicit in the scheme? Who wants to see the price of their home fall 70%? But that’s what needs to happen to lower rents and mortgage payments enough to make U.S. labor competitive in the world. Housing costs are a major reason why a worker in India can live on $2,000 a year for the same job that pays $30,000 a year here that you can’t live on.

ND: What is the structural reset that needs to happen this time?
EJ: A reset to end U.S. dependence on global capital exports to finance trade and fiscal deficits.

Getting back to the dollar, as I was saying usually the decline is gradual due to the accumulation of structural imbalances over decades but there are times when a rapid currency decline happens that can be directly attributed to a single, massive management blunder.

For example, the 40% decline in the dollar between 2003 and 2008, after the start of the Iraq War. Beginning in 2003 we spent $1 trillion dollars to fight the war. We didn’t pay for the war out of savings and we didn’t raise taxes. We borrowed the money to pay for the war. Then we lost the war. Global currency markets started to discount the dollar from the start. Needless to say, losing an expensive war is not good for a nation’s currency, and any economist who thinks that a depreciating currency is deflationary should look back to the inflation data from 2003 to 2008, culminating in food riots in the Middle East and India. But the war was only one blunder by management during the period. Creating a housing bubble between 2002 and 2006 to pull the country out of the post stock market recession was another idiotic maneuver that weighs on the dollar.

ND: I see that you guys said in July 2008 to expect de-leveraging to go on for three to six months and for the dollar to stop rising and resume its decline after that.
EJ: We were close. The process took more like eight months. We didn’t fall into the trap of thinking the dollar had entered a secular bull market.
http://www.itulip.com/images/dollar1973-Sept2009.gif





ND: Where do you see the dollar going from here?
EJ: We’re sticking with our dollar 60 by 2012 forecast that we made in March 2009.

ND: You don’t see the new administration correcting the policy mistakes that are hurting the dollar?
EJ: No, they are compounding them. In the short term they didn’t have much choice. If you inherit a corporation with the kinds of problems USA, Inc. had at the end of 2008, it’s like taking over a ship that’s been torpedoed. The first order of business is keeping it from sinking to the bottom of the sea. Measures required to keep it afloat in the short term made many problems worse in the long term. The biggest of them is the administration’s response to the collapsed housing bubble.

Here the difference between the management decision process in a corporation versus in a plutocracy becomes apparent and the analogy breaks down. If the USA were a corporation instead of a country, new management could evaluate the housing industry as a line of business, take a 50% haircut on assets and restructure the debt down to half and be done with it. One of the benefits would be a 50% reduction in rents and mortgage payments. This would act as a gigantic tax cut on the economy, freeing household income to be spent on other things and providing a huge boost to consumer spending. I believe this would outweigh the negative wealth effects.

You hear a lot of talk about tax cuts to stimulate the economy but no one talks about a debt cut, but a debt cut will free far more household and business cash flow then cutting taxes. That will never happen because the banks need the flow of mortgage payments to survive, and in case you hadn’t noticed the banks have political influence in Congress that they are not giving up. So the government subsidizes mortgages to try to re-inflate housing prices.

DN: Is it working?
EJ: How could it not work, at least in the short term? Throw enough money at anything and it will rise in price, if only for a while.

A friend in the mortgage business sent us a note that explains that under the new Home Affordability program Fannie Mae is buying up first and second loans at what he describes as, “extremely dangerous and unprecedented levels.” Once owned by Fannie, principal reductions of $200,000 or more are being provided to borrowers. He adds, “Surely, a $200,000 principal reduction makes the $600 stimulus checks look like peanuts.” So after throwing trillions at the housing market to buy bad assets of lenders, back new mortgages through nationalized GSEs to absorb default risk that the private markets will not touch, and discount mortgages for new home purchases, we get an echo bubble that will last until either of two things happen, either employment rebounds so that more home owners can pay their mortgages or the U.S. government runs out of credit and can’t continue financing the housing market.

DN: You are not in the camp that says the U.S. housing market has turned around?
EJ: No. Later we’ll get into the data on the economy and housing that we use to back up this argument, but it comes down to trends in foreclosures, mortgage defaults, unemployment, and incomes. They are still headed in the wrong direction. For example, foreclosures are rising in every state in the country.

http://www.itulip.com/images/foreclosures6mochangemay2009.gif





If the rate of foreclosures merely stabilized anywhere in the U.S. we’d see a spot of yellow or two on the graph above created with the Fed’s online dynamic housing conditions tools. Any shade of red indicates that conditions have worsened. This is not surprising given that unemployment has been rising in every state in the nation since January 2009.


http://www.itulip.com/images/unemploymentmapitulipDec2007-Aug2009.gif
Dynamic map of year over year change in unemployment December 2007 to August 2009
Light blue = falling unemployment. Dark blue = rising unemployment.


Then there are the mortgages. Take California, the world’s seventh largest nation by GDP.

http://www.itulip.com/images/armssharemay2009.gif





Just under 70% of ARMS in California are Alt-A, so-called prime not sub-prime mortgages.


http://www.itulip.com/images/calatepaymentmay2009.gif





As of May, 44% of those mortgages were technically in default, of 70% of all ARMS; about 30% of all ARMS are in default.


Meanwhile, unemployment continues to rise.

http://www.itulip.com/images/califorinaunemployment1976-Sept2009.gif





The heroic effort to rescue the housing market has produced a blip in the housing bubble reversion to the mean that we forecast in 2007.


http://www.itulip.com/images/REfictitious.gif



iTulip housing price forecast from 2007

http://www.itulip.com/images/case-shillerhomepriceindex1987-Jul2009.gif






Actual home prices as of July 2009



We tracked housing permit issuance to forecast the end of the housing bubble in 2005, so we return to it to help guide our forecast from here.

http://www.itulip.com/images/buildingpermitsissued1960-Sept2009.gif





Building permit issuance has stopped declining year over year after falling 78% from the peak and may have stabilized. However, permit issuance will remain at early 1990s levels for the next decade.

http://www.itulip.com/images/housingechobubble.gif





The housing echo bubble will not last long without sustained government support or a robust improvement in jobs and incomes. We expect the reversion to the mean process to continue next year.

ND: Robert Shiller says the housing bubble can be restarted.
EJ: How? The housing bubble was financed with private credit issued by investment banks, purchased by foreign investors, and sold by unaccountable lenders, with an entire chain of craziness, from bent appraisers and real estate lawyers to over-zealous commercial banks. The entire system has broken down. It can’t even function normally, never mind in hyper-drive to create a new bubble. Look at the rate of increase of loan losses for all sizes of banks.

http://www.itulip.com/images/conditionsofbanks1988-Sept2009.gif





ND: That is one ugly chart.
EJ: Again, we have to keep this all in context. If we told readers in 2005 when we warned about the housing bubble that GSEs Fannie Mae and Freddie Mac were to be nationalized within three years, we’d have been called alarmist. But the Wall Street Journal reported on Tuesday that this year 80% of all mortgages were purchased in the secondary market by the FHA, versus 20% in 2006. What the chart above says to me is that some day down the road we may find a large segment of our banking industry has been nationalized much as we have for all intents and purposes nationalized the mortgage banking industry.

Think about what the virtual nationalization of mortgage debt means. It means that 80% of home sales that are occurring today would not occur except for the government’s guarantee of mortgage credit. We have for all intents and purposes a nationalized housing market here in the U.S. And who is backing the mortgage debt? Not investors in mortgage-backed securities in Europe and Asia. In fact, the Treasury is busy buying back Agency debt from them, the bonds issued by the GSEs, with Treasury bonds. You can see the net decline in purchases in agency debt and the corresponding rise in net purchases of Treasury bonds in the data.

ND: We’ve effectively nationalized our housing market?
EJ: Yes.

ND: How do we re-privatize it?
EJ: In my opinion, and this goes back to analysis I did in 2005, by inflating the nominal incomes of mortgage payers. Politically, I don’t see any other way.

ND: If the housing market resumes its decline, what happens to the recovery?
EJ: The housing bubble was financed with mortgages backed by securities sold to private and public investors all over the world. But these new mortgages are financed by the government. Each and every mortgage adds to our public debt. The administration’s approach to the private credit crisis is to create a future soveriegn credit crisis.




<table valign="top" align="left" border="0"> <tbody><tr> <td>http://www.itulip.com/forums/../images/governmentbubble300.gif</td> </tr> </tbody></table>Mission Accomplished – Part II: Wrecked markets ($ubscription) (http://www.itulip.com/forums/showthread.php?p=123516#post123516)

• Nationalized economy not resuscitating the consumer
• Ongoing declines in consumer debt and income do not point to a V-shaped recovery
• Wage rates among the employed are rising steeply
• Inflation will rise across the board in Q1 2010

ND: What’s with the stock market? In March you called this the “First Bounce of the Debt Deflation Bear Market” and in June said it was over, but after a dip it kept going up.
EJ: The First Bounce marked a new phase of post-FIRE Economy-based asset pricing and the start of re-inflation policy based asset pricing. The initial 30% plus gain off March panic lows represented a relief rally. Since then, many factors have combined to drive the market up, among them: funds playing the re-inflation trade, conservative long-short funds piling in to catch up to more aggressive funds that got back into the market in March, and retail investors chasing the recovery to name three.

ND: You have two apparently contradictory stock market forecasts. Late last year you said that in the second year of the Debt Deflation Bear Market the DJIA will rally to around 10,000 then end the year around 8,500. Then in August 2009 you said you thought the S&P will fall to 500 to 600 at some point before the end of the year. Here it is mid September and the DJIA is only a couple of hundred points shy of 10,000 and the S&P over 1060 is nowhere near 600. Do you still see the DJIA falling back to 8,500 and the S&P falling 40% to 600 over the next two and a half months?
EJ: The DJIA traded down to 6,500 in March then reached 8,800 at the time I said the first bounce was over, a 26% gain. Since then it’s up another 10%. So clearly it was not over. But here's why I'm not buying the rally.

The U.S. stock market is no more a market than the U.S. housing market is a market. There’s just too much printed money floating around to forecast it they way are used to starting in 1999, as a private capital bubble market. Remember that the value-based stock market ended in 1996 and the asset price inflation market driven by private capital began. We started to cover that here in 1998. The private capital bubble market ended in 2008 and the government reflation market began in 2009.

Our 2009 Debt Deflation Bear Market year two forecast used the first year of the government reflation market in Japan as a guide to the processes involved. The theory was that markets can’t tell the difference between government financed economic growth and organic economic growth.
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http://www.itulip.com/forums/../images/japanstimulusVSgdpVSstocksNOTES091609.gif





Chart correlates stimulus to GDP and stock prices

In December 2008, we applied this theory to the U.S. and estimate at the impact of fiscal spending in the second year of the Debt Deflation Bear Market.

http://www.itulip.com/forums/../images/debtdeflationbear2009.gif





We show two rallies in 2009 resulting from the stimulus, the first takes the DJIA to 10,000 and the second to 9500.

This forecast is highly speculative because there is no way of knowing how the effect of the stimulus will express itself in stock prices, but I believe the principle is correct, just as the principle of debt deflation enabled us to accurately forecast the 40% decline in stock prices in 2008. But instead of two rallies we got one big one. We should have known.

If we have learned anything over the past ten years it’s this: Wall Street is very adept at taking a trend and turning into a bonus-packed juggernaut.

Take the commodity bull market in 2008, and especially oil. The weak dollar trend took oil from $16 to around $60. Wall Street then took it from $60 to $147. That game got cut off when capital inflows reversed. The liquidity drain crashed the securitized mortgage debt market in Q1 2007. The rest is history. more... ($ubscription) (http://www.itulip.com/forums/showthread.php?p=123516#post123516)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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c1ue
09-18-09, 07:55 PM
Dear EJ,

Thank you again for continued great work.

Please consider using myself or one of the other frequent iTulipers for proofreading; there are numerous grammatical and spelling issues, but of course these do not detract from the basic message.

Congratulations also for nearly completing your journey to the 'dark side'. Hooo Shhhhh!

On a more serious note, have you and the iTulip trust done some research into who the new sovereign financial overlords of the US will be?

It would be useful to gauge the origins of the hands which force higher taxes and inflation upon the US for the next decade, or at least to understand the relative weights of other nation's policies.

From this article it would appear that Japan is no longer going to be a source of cheap credit to the US; does this for example mean that Japan in turn will switch from being the donkey pulling the cart to the whip hand?

doom&gloom
09-18-09, 08:46 PM
i feel like a kid in a candy store with every new EJ post!

Jay
09-18-09, 09:42 PM
From this article it would appear that Japan is no longer going to be a source of cheap credit to the US; does this for example mean that Japan in turn will switch from being the donkey pulling the cart to the whip hand?
Why will Japan or China for that matter be the ones with the whip? Won't we just inflate away their claims on us and tell them to spit?

cjppjc
09-18-09, 09:45 PM
Why will Japan or China for that matter be the ones with the whip? Won't we just inflate away their claims on us and tell them to spit?


Forget that. How are you going to tell your wife you have to wait till home prices drop 70 percent?:D:)

Jay
09-18-09, 09:52 PM
Forget that. How are you going to tell your wife you have to wait till home prices drop 70 percent?:D:)
I pull out a new trick every day and come here for support when I feel weak. ;) In addition, we have had multiple overqualified people offer to babysit recently, and some have driven an hour to get here and one has a postgrad degree. I have pointed out why this is so and I think my wife is getting it. She at least doesn't ask me anymore why I keep buying those shiny coins.

magicvent
09-18-09, 10:42 PM
EJ --

You say that "The housing echo bubble will not last long without sustained government support or a robust improvement in jobs and incomes. We expect the reversion to the mean process to continue next year."

It appears that the $8000 housing credit will be extended for at least another year, and maybe even longer. Won't such sustained support prevent the mean reversion from occurring next year?

cjppjc
09-18-09, 10:45 PM
I pull out a new trick every day and come here for support when I feel weak. ;) In addition, we have had multiple overqualified people offer to babysit recently, and some have driven an hour to get here and one has a postgrad degree. I have pointed out why this is so and I think my wife is getting it. She at least doesn't ask me anymore why I keep buying those shiny coins.


Using truth and logic to deny your wife the things she wants most. Brilliant.:D

jk
09-18-09, 10:49 PM
EJ --

You say that "The housing echo bubble will not last long without sustained government support or a robust improvement in jobs and incomes. We expect the reversion to the mean process to continue next year."

It appears that the $8000 housing credit will be extended for at least another year, and maybe even longer. Won't such sustained support prevent the mean reversion from occurring next year?
the process will continue. it won't be completed next year or the year after. it will take several years. the $8k credit slows the process, but it really only helps support the bottom end of the market anyway, and even so won't reverse the process in the face of squeezed incomes. hey, doesn't everyone want affordable housing?:rolleyes: be careful what you wish for....

stumann
09-18-09, 11:41 PM
in Rogue economics : capitalism's new reality (http://mylibrary.wollongong.nsw.gov.au/cgi-bin/spydus.exe/ENQ/OPAC/BIBENQ/838438?QRY=IRN%289124057%29&QRYTEXT=Rogue%20economics%20:%20capitalism%27s%20n ew%20reality&NAVLVL=SET), Loretta Napoleoni points out that the Euro soared as a result of the Patriot Act making money laundering in US$'s much too risky, which was then magnified by globalised hedge funds jumping on board and pushing the US$ even lower.

chances are Obama will eventually withdraw much of Patriot Act, both in an attempt to "strengthen democracy", but more likely as a favor to Wall St. it'll be a green light to the global rogue economic element that the US is once again "open for business" in the money laundering department.

any news of a Patriot Act reversal should mean both a strengthening US$ coupled with inflation in real estate.

Stroebel
09-18-09, 11:53 PM
I greatly appreciate the intellectual honesty embraced by itulip. Economic forecasting, and especially stock market forecasting, is a tricky, treacherous business.

Once again, you (me too) have underestimated the ability of USA Inc. and Wall Street to reflate. You're still betting that this time really is different. You are willing to back up your bet with hard facts and reasoning. And your position is persuasive.

A nice introduction to "Part II." You've certainly won my respect and my interest in learning more.

ThePythonicCow
09-18-09, 11:55 PM
in Rogue economics : capitalism's new reality (http://mylibrary.wollongong.nsw.gov.au/cgi-bin/spydus.exe/ENQ/OPAC/BIBENQ/838438?QRY=IRN%289124057%29&QRYTEXT=Rogue%20economics%20:%20capitalism%27s%20n ew%20reality&NAVLVL=SET), ...That link only seems to work if one is logged into some account at mylibrary.wollongong.nsw.gov.au.

Here's a link to what is I presume that same work on Amazon: Rogue Economics: Capitalism's New Reality (http://www.amazon.com/Rogue-Economics-Capitalisms-New-Reality/dp/1583228241) by Loretta Napoleoni.

atlantafox
09-19-09, 12:50 AM
Please consider using myself or one of the other frequent iTulipers for proofreading; there are numerous grammatical and spelling issues, but of course these do not detract from the basic message.

Far be it for me to criticize, but there is a big difference in ease of comprehension with an unedited EJ post and his articles in Harper’s, and the Harvard Business Review.

In all fairness, editing is a professional endeavor. To comprehend the scope involved look at Vanity Fair’s editing of Sarah Palin’s Resignation: The Edited Version.

<O:p</O:phttp://www.vanityfair.com/politics/features/2009/07/palin-speech-edit-200907 (http://www.vanityfair.com/politics/features/2009/07/palin-speech-edit-200907)<O:p</O:p

And should we forget: Palin graduated with a Bachelor of Science degree in communications-journalism from the University of Idaho in 1987. I’m not sure what this says about her, or our educational system, but any comments would lead us off topic.

<O:p</O:pMay I suggest starting with a basic grammar book and revisit the lowly comma.:D<O:p</O:p<O:p</O:p

c1ue
09-19-09, 01:12 AM
Why will Japan or China for that matter be the ones with the whip? Won't we just inflate away their claims on us and tell them to spit?

If the US were not simultaneously borrowing more money for trade (currency account deficit = $380B in 2009, give or take) as well as borrowing more money to fund federal deficit spending ($1.6T or $2.2T in FY2009 depending on the estimate source), then the US could theoretically get away with a devaluation without major consequences.

As EJ notes - in the '80s the US was owed more than it owed, thus could dictate the terms.

Today the situation has changed; those nations holding US debt and continuing to borrow are the ones who could hold the whip hand.

Whether they do so and how thus is important to know.

To conclude the list of the usual suspects:

http://www.treas.gov/tic/mfh.txt


Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul
Country 2009 2009 2009 2009 2009 2009 2009 2008 2008 2008 2008 2008 2008
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

China, Mainland 800.5 776.4 801.5 763.5 767.9 744.2 739.6 727.4 713.2 684.1 618.2 573.7 550.0
Japan 724.5 711.8 677.2 685.9 686.7 661.9 634.8 626.0 625.2 629.6 617.5 630.3 637.6
United Kingdom 2/ 220.0 214.0 163.8 152.8 128.2 129.1 123.9 130.9 132.4 133.2 112.8 82.5 66.1
Carib Bnkng Ctrs 4/ 193.2 189.7 194.8 204.7 213.6 189.1 176.6 197.5 205.0 203.5 169.3 132.9 117.6
Oil Exporters 3/ 189.2 191.0 192.9 189.5 192.0 181.7 186.6 186.2 187.2 176.7 171.2 169.6 162.9
Brazil 138.1 139.8 127.1 126.0 126.6 130.8 133.5 127.0 136.1 141.0 148.3 152.6 154.8
Russia 118.0 119.9 124.5 137.0 138.4 130.1 119.6 116.4 108.0 110.8 99.6 104.2 104.0
Hong Kong 115.3 99.8 93.2 80.9 78.9 76.3 71.7 77.2 70.6 69.8 65.5 65.8 65.2
Luxembourg 92.2 104.3 96.3 97.6 106.1 92.3 87.2 97.4 94.4 100.8 104.7 90.4 89.7
Taiwan 77.4 77.0 75.7 78.3 74.8 72.6 73.3 71.8 70.2 65.9 63.0 66.2 67.9
Switzerland 68.1 71.6 63.7 64.2 67.7 68.2 62.1 62.3 63.8 62.0 49.7 45.9 45.7
Germany 56.3 53.9 55.2 54.6 55.0 56.6 56.4 56.1 54.0 53.7 51.6 51.8 51.7
Singapore 42.4 40.8 39.6 39.7 39.1 39.4 38.3 40.8 38.8 34.0 32.2 31.9 32.8
India 38.9 39.3 38.8 38.5 38.2 34.6 32.5 29.2 22.3 18.3 20.3 20.2 19.0
Ireland 38.6 46.3 50.6 49.7 54.7 54.5 50.0 54.3 41.3 35.1 32.9 18.9 16.9
Korea 37.6 36.3 37.4 35.4 33.1 33.3 31.3 31.3 32.7 36.2 40.2 42.1 39.4
Thailand 31.4 29.7 26.8 28.5 26.0 39.7 37.2 32.4 33.9 33.6 27.4 30.4 30.6
Norway 28.9 28.7 28.3 27.5 26.2 21.1 21.9 23.1 20.2 11.5 13.2 2.4 2.8
Mexico 27.7 29.5 31.6 35.4 36.3 37.9 34.9 34.8 33.8 32.2 32.5 32.6 34.3
Turkey 27.3 27.5 28.8 27.2 30.2 32.4 31.3 30.8 29.0 27.9 31.5 34.3 32.7
France 24.6 26.0 25.9 30.6 27.1 16.8 17.9 16.8 18.4 20.5 19.3 21.2 17.1
Netherlands 21.5 18.9 16.3 16.5 17.6 16.1 16.8 15.4 15.6 15.7 15.6 16.9 17.8
Canada 20.2 19.0 11.5 13.1 11.9 10.9 9.0 8.2 12.7 14.0 16.0 23.5 22.3
Egypt 18.6 17.3 18.6 18.5 18.5 19.1 16.9 17.2 16.8 16.7 15.5 14.5 15.1
Italy 17.4 16.8 16.8 16.2 16.6 16.5 15.6 16.0 15.9 15.3 11.6 12.9 11.0
Israel 16.9 18.1 19.0 19.1 19.4 17.4 16.9 18.8 13.8 12.4 8.7 7.6 8.1
Sweden 16.5 16.5 13.0 12.7 12.5 12.7 12.4 12.7 13.1 13.5 13.6 14.7 14.4
Belgium 15.7 15.7 15.7 15.8 15.4 14.5 15.5 15.9 15.3 15.8 15.4 14.8 15.0
Colombia 14.8 11.8 11.9 11.4 11.2 11.4 11.3 11.1 11.5 11.3 9.9 9.0 9.3
Chile 13.5 14.3 14.7 15.1 15.5 15.2 15.2 15.2 15.1 15.4 13.4 13.0 13.6
Malaysia 11.9 11.7 12.3 11.6 10.6 8.4 8.0 8.4 8.8 8.6 9.4 10.1 10.5
Philippines 11.4 11.6 11.8 12.0 12.4 12.6 11.6 11.7 11.5 12.1 12.0 12.3 12.4
All Other 159.6 157.6 157.8 153.5 156.7 164.9 162.5 156.5 156.2 149.1 137.8 139.2 135.6
Grand Total 3428.0 3382.5 3293.2 3262.7 3265.3 3162.0 3072.2 3076.9 3036.6 2980.3 2800.1 2688.4 2624.0

kartius919
09-19-09, 01:41 AM
I think he is referring to Fannie and Freddie and the US purchase of mortgage backed securities. Meaning, the US is the only lender to the real estate market.

metalman
09-19-09, 02:07 AM
Far be it for me to criticize, but there is a big difference in ease of comprehension with an unedited EJ post and his articles in Harper’s, and the Harvard Business Review.

In all fairness, editing is a professional endeavor. To comprehend the scope involved look at Vanity Fair’s editing of Sarah Palin’s Resignation: The Edited Version.

<o>:p</o>:p (http://www.vanityfair.com/politics/features/2009/07/palin-speech-edit-200907)http://www.vanityfair.com/politics/features/2009/07/palin-speech-edit-200907<o>:p</o>:p

And should we forget: Palin graduated with a Bachelor of Science degree in communications-journalism from the University of Idaho in 1987. I’m not sure what this says about her, or our educational system, but any comments would lead us off topic.

<o>:p</o>:pMay I suggest starting with a basic grammar book and revisit the lowly comma.:D<o>:p</o>:p<o>:p</o>:p

feh... you see run on sentances, i see data density. when i copy & paste parts 1 & 2 into ms word i get > 9k words. a long harper's article is ~ 6k words... written for a non econ & finance audience with 1 or 2 charts for dummies. to cover the same ground in harpers... what... 15k - 20k words? also... i count 31 charts & graphs. maybe ej needs to cut that down to 2 or 3... keep it simple like a harper's article? :rolleyes:

Chris Coles
09-19-09, 06:39 AM
I can well understand EJ's reluctance to let anyone else take a look at the text prior to publishing on his own site. His passion and commitment are by far and away the better expressed in the raw text we get and what the heck? It is absolutely great material.

MarkL
09-19-09, 07:02 AM
But since U.S. consumer demand for imports fell off a cliff last year, we’re not worth the trouble.

http://www.itulip.com/images/importsexports1960-Sept2009.gifAm I color blind or are the lines in the chart above, colored backwards?

Currently US Exports, BOPXGS, labeled in red, are increasing, over 50 years and then "fallling off a cliff", while US imports, BOPMGS, labeled in Blue have been declining over 50 years and now are jumping suddenly.

This chart is colored backwards, right?

Jay
09-19-09, 07:53 AM
Using truth and logic to deny your wife the things she wants most. Brilliant.:D
Spilled. My. Coffee. :D

Jay
09-19-09, 08:05 AM
If the US were not simultaneously borrowing more money for trade (currency account deficit = $380B in 2009, give or take) as well as borrowing more money to fund federal deficit spending ($1.6T or $2.2T in FY2009 depending on the estimate source), then the US could theoretically get away with a devaluation without major consequences.

As EJ notes - in the '80s the US was owed more than it owed, thus could dictate the terms.

Today the situation has changed; those nations holding US debt and continuing to borrow are the ones who could hold the whip hand.

Whether they do so and how thus is important to know.


What can they do to the US that won't rebound and hurt them even more? The US is the epicenter of the world economy, finance, agriculture, and military might. I would hazard that the US options are vast if things get bumpy, no? All of those countries will be on tip-toes until the debt is deflated. How do they dictate anything to us? Am I just being jingoistic here?

thousandmilemargin
09-19-09, 09:24 AM
What can they do to the US that won't rebound and hurt them even more? The US is the epicenter of the world economy, finance, agriculture, and military might. I would hazard that the US options are vast if things get bumpy, no? All of those countries will be on tip-toes until the debt is deflated. How do they dictate anything to us? Am I just being jingoistic here?


Has it occurred to you that China may WANT the USA to devalue to dollar...or may eventually come to see that this is necessary?
They have an export dependent economy. Restructuring it to rely on domestic consumption may take decades, and may be impossible due to their own surplus of cheap labour. The easiest thing for them is to "allow" the USA to devalue the dollar 50% to stimulate a "recovery" ( and effectively reduce debt/GDP by 50%).
Remember that the Chinese government bought their US assets using yuan they printed up at no cost. They exchanged printed fiat yuan for dollars (through sterilisation operations), then parked them in bonds. If their assets decline in value by 50%, so what? They were always STRATEGIC assets to begin with, not economic assets. It was all about gaining the ability to peg the yuan at any level they chose and transfering the manufacturing base from the USA to China.

If the USA dollar lost 50% of its value, that doesn't necessarily mean the yuan rises against the US dollar. China has the resources to peg the yuan against the dollar regardless of how far the dollar slides - they too have a printing press.

They could allow or - here's a thought - PROVOKE a slide in the US dollar, while maintaining the yuan peg - which would allow them to devalue the yuan in lockstep with the dollar while claiming total innocence. This would give them a further export advantage relative to Europe at a time when their exports were crashing, and at the same time stoke US demand for Chinese goods.

The short term result is that Europe, rather than China, is forced to suffer the pain of scapping excess manufacturing capacity, and the USA makes a rapid but sickly recovery. In the longer term, the USA heads the way of Argentina, and gradually sheds its empire and hegemony.

What's not to like?

I don't think the Chinese are at that point yet. But sooner or later they will wake up and realise that devaluation is the only way out for the USA - and they can work this into their own plans. They can manage the slide of the US dollar down in a controlled fashion by carrying out currency operations in Euros, dollar and gold, avoiding any sudden lurches.

Not so much "competive currency devaluation" as "co-operative currency devaluation". Engineer the devaluation of the yuan-dollar pair in order to stimulate "recovery".

Of course "recovery" allows them to continue the process of transfering power, technology and manufacturing from the USA to China, eroding the status of the USA as hyper-power and leading to a more multipolar world.
The process ends with the USA as a fallen giant. A steadily declining currency dismantles the empire far more effectively than any weapon could. I don't think they would want to cripple the USA - just graduallly deflate it down to a manageable level.

Maybe China accumulated those huge dollar reserves so they could engineer a long slow dollar slide by selling them off? Could they be that longsighted? Probably not, but they make wake up and realise what they are holding.

Jay
09-19-09, 09:41 AM
Has it occurred to you that China may WANT the USA to devalue to dollar...or may eventually come to see that this is necessary?
They have an export dependent economy. Restructuring it to rely on domestic consumption may take decades, and may be impossible due to their own surplus of cheap labour. The easiest thing for them is to "allow" the USA to devalue the dollar 50% to stimulate a "recovery" ( and effectively reduce debt/GDP by 50%).
Remember that the Chinese government bought their US assets using yuan they printed up at no cost. They exchanged printed fiat yuan for dollars (through sterilisation operations), then parked them in bonds. If their assets decline in value by 50%, so what? They were always STRATEGIC assets to begin with, not economic assets. It was all about gaining the ability to peg the yuan at any level they chose and transfering the manufacturing base from the USA to China.

If the USA dollar lost 50% of its value, that doesn't necessarily mean the yuan rises against the US dollar. China has the resources to peg the yuan against the dollar regardless of how far the dollar slides - they too have a printing press.

They could allow or - here's a thought - PROVOKE a slide in the US dollar, while maintaining the yuan peg - which would allow them to devalue the yuan in lockstep with the dollar while claiming total innocence. This would give them a further export advantage relative to Europe at a time when their exports were crashing, and at the same time stoke US demand for Chinese goods.

The short term result is that Europe, rather than China, is forced to suffer the pain of scapping excess manufacturing capacity, and the USA makes a rapid but sickly recovery. In the longer term, the USA heads the way of Argentina, and gradually sheds its empire and hegemony.

What's not to like?

I don't think the Chinese are at that point yet. But sooner or later they will wake up and realise that devaluation is the only way out for the USA - and they can work this into their own plans. They can manage the slide of the US dollar down in a controlled fashion by carrying out currency operations in Euros, dollar and gold, avoiding any sudden lurches.

Not so much "competive currency devaluation" as "co-operative currency devaluation". Engineer the devaluation of the yuan-dollar pair in order to stimulate "recovery".

Of course "recovery" allows them to continue the process of transfering power, technology and manufacturing from the USA to China, eroding the status of the USA as hyper-power and leading to a more multipolar world.
The process ends with the USA as a fallen giant. A steadily declining currency dismantles the empire far more effectively than any weapon could. I don't think they would want to cripple the USA - just graduallly deflate it down to a manageable level.

Maybe China accumulated those huge dollar reserves so they could engineer a long slow dollar slide by selling them off? Could they be that longsighted? Probably not, but they make wake up and realise what they are holding.
Very well said, I share many of the same thoughts. I just don't understand, at least at this point, how anyone is going to dictate policy to the US effectively. It looks to me that the US holds most of the important cards and that it will be in everyone's best interest to play along in the sandbox as the debt is deflated away: a long slow process of dollar and global currency devaluation in general, with the possibility of a black swan entering and spoiling the party. Own the deflator.

jk
09-19-09, 09:59 AM
i think any analysis/forecast should include mention of the dollar-oil link, whether middle eastern oil remains [for the most part] sold only for dollars, and how those dollars are recycled. i agree that the chinese might not mind a dollar slide vis a vis the euro, and would tend to force the yuan down similarly. but our middle eastern clients might not be very happy and their actions will complicate the process. were they to de-link the dollar and oil, the dollar's slide might get disorderly.

metalman
09-19-09, 11:16 AM
Am I color blind or are the lines in the chart above, colored backwards?

Currently US Exports, BOPXGS, labeled in red, are increasing, over 50 years and then "fallling off a cliff", while US imports, BOPMGS, labeled in Blue have been declining over 50 years and now are jumping suddenly.

This chart is colored backwards, right?

balance of payment basis exports = bopxgs right scale red, scale starts at 0 to -700. as exports vs imports rises, exports bop falls.
balance of payment basis imports = bopmgs right scale blue, scale starts at 569 to -40. as imports vs exports falls, exports bop rises.

another chart you'd never see in harper's or havard biz... too complicated to read with two scales... and who understand bop? the only way to show the relationship?

metalman
09-19-09, 11:24 AM
I can well understand EJ's reluctance to let anyone else take a look at the text prior to publishing on his own site. His passion and commitment are by far and away the better expressed in the raw text we get and what the heck? It is absolutely great material.

we've been over this before, no? the errors get fixed over time... a day or two after the initial publishing date. fred used the analogy of beta versions vs major release. why don't we all pm fred with errors we find instead of nitpicking them the thread? as a tech writer i can tell you, in 9,000+ words there will be errors even several editing passes vs a 500 word harvard biz review shorty. btw, i find spelling & grammar errors all the time in major newspapers & magazines.

c1ue
09-19-09, 12:53 PM
What can they do to the US that won't rebound and hurt them even more? The US is the epicenter of the world economy, finance, agriculture, and military might. I would hazard that the US options are vast if things get bumpy, no? All of those countries will be on tip-toes until the debt is deflated. How do they dictate anything to us? Am I just being jingoistic here?

The US being the epicenter of the world economy... this is changing as we speak. Think Multi-Polar.

As for what being done to the US hurting the do-er - we're way past the point of clean intervention. Think 'The Exorcist' instead.

The point is that while anything done by the US' creditors will hurt the creditor economies in the short term, in the long term allowing a deadbeat customer to continue to draw down your credit is worse.

I've spoken to this before: if the choice is between killing the value of the existing dollar hoards in the US' creditor countries or allowing the US to devalue the dollar but the world economy continues to grow, then no problem. But the world economy is shrinking AND the US is devaluing the dollar. Why then bother continuing to extend MORE credit when your own internal economies are suffering?

You are advocating losing money on each sale, but making up for it in volume. Doesn't work.


Has it occurred to you that China may WANT the USA to devalue to dollar...or may eventually come to see that this is necessary?

China does not want the US to devalue the dollar. Why? One of China's advantages has been its ability to control its currency - specifically to keep the RMB lower in relative value than it should be.

How would the US devaluing its currency help China?

A lower dollar (and an even lower RMB) just means China gets even less for its currency than it currently does without any corresponding benefit. If you're already the lowest price dude on the block, Wal-Mart moving in and forcing you to lower your prices more is not a benefit.

Secondly the lower dollar has immediate effects on the existing dollar 'savings' which China has accumulated. No one in China wants to see the fruits of the last decade+ significantly devalued away.

As for devaluation being necessary - the question isn't whether the dollar devalues or not. The question is what the US' creditors are going to get.

The public company analogy is apt: China is the bondholder to the US as a corporation. While the dollar = stock shares of the US is going to tank, as a creditor China normally would have first dibs on the US' assets should the company/US go into bankruptcy/restructuring.

These assets could be intellectual property, resources, income producing real estate, military bases, technology, or whatever.

Sure, if the US didn't need more money from its creditors then perhaps no assets would need to be surrendered.

But the US does need more, LOTS more.

$20B+ per week in Treasuries sold for every single week from now until the end of 2010 as one example - that's only $1.3T

If the full federal deficit were funded, the number per week would be more like $40B+

Now throw in an additional $7B/week for the trade deficit.

Then another $10B/week for interest on existing debt.

Scared yet?

ThePythonicCow
09-19-09, 01:02 PM
I can well understand EJ's reluctance to let anyone else take a look at the text prior to publishing on his own site. His passion and commitment are by far and away the better expressed in the raw text we get and what the heck? It is absolutely great material.
Well said.

An edit cycle, even if just for the easy typos, adds another several hours to the publication process.

I'll wager that if we took a poll here and asked whether people want it sooner with more warts, or later after some fixes, it would be overwhelmingly in favor of sooner.

In general, the amount of time one should spend in cleanup cycles depends on how wide is the audience. The more people who will read or use the end-result, the more it makes sense to shift the consumption effort from the consumer to the producer.

ThePythonicCow
09-19-09, 01:05 PM
Am I color blind or are the lines in the chart above, colored backwards? EJ had fun with the Y-axes -- beware.

P.S. -- Looks like metalman responded better than I did, for both my last two posts here. Read him, not me :).

Jay
09-19-09, 01:18 PM
i think any analysis/forecast should include mention of the dollar-oil link, whether middle eastern oil remains [for the most part] sold only for dollars, and how those dollars are recycled. i agree that the chinese might not mind a dollar slide vis a vis the euro, and would tend to force the yuan down similarly. but our middle eastern clients might not be very happy and their actions will complicate the process. were they to de-link the dollar and oil, the dollar's slide might get disorderly.
Might they not see the benefit if the world is melting down and the two winners are PM's and oil? Assuming they stay in power, of course. They lose their savings, but have much more real currency under the ground unlike much of the world.

swgprop
09-19-09, 02:16 PM
A friend in the mortgage business sent us a note that explains that under the new Home Affordability program Fannie Mae is buying up first and second loans at what he describes as, “extremely dangerous and unprecedented levels.” Once owned by Fannie, principal reductions of $200,000 or more are being provided to borrowers.

EJ-

This is anecdotal but quite interesting. I've not heard of any programs embracing principal reductions yet. The "official" policy under HAMP (https://www.efanniemae.com/sf/mha/mhamod/pdf/hampsummary.pdf) is to offer annual incentive-based principal reductions of $1000 - pay for performance if you will (quite a reward for becoming a debt slave).

Ultimately we may get to the stage where voluntary principal reductions are offered, perhaps only after they are the de facto practice via BK cramdowns.

Institutions at this point are reluctant to offer them for a variety of reasons, not the least of which is that once they go down that path there is no turning back. Who is going to accept an "extend and pretend" modification once it becomes known that principal reductions are on the table?

In any case I'd be interested in any evidence to support the notion that Fannie has adopted reductions as a practice.

And thanks for the great analysis, look forward to reading it over and over and over ....

Jay
09-19-09, 02:30 PM
The US being the epicenter of the world economy... this is changing as we speak. Think Multi-Polar.

As for what being done to the US hurting the do-er - we're way past the point of clean intervention. Think 'The Exorcist' instead.

The point is that while anything done by the US' creditors will hurt the creditor economies in the short term, in the long term allowing a deadbeat customer to continue to draw down your credit is worse.

I agree on the evolving multi-polar world and the bilateral agreements that China has been making, ect., I'm just not convinced the rest of the world will dicate much to the US, at least in the near future. Why would the rest of the world pull an 'exorcist' if they can pull away slowly? Excorcism gets green pea soup vomit all over the couch. It looks like a slow dance pull away to me, lasting years, without much of a strong arm heading in the direction of the US. The US has unilaterally defaulted before and the world watched and did nothing, and I bet it's going to happen again in a similar fashion. If someone isn't happy with that or something untoward happens, the US will end up with one eye while everyone else is blind. What else can the world do? Cry and stomp their feet? How do they get dibs on Corporation USA if we tell them to go screw? I doubt we just hand them a few military bases and smile.

I agree that things get tricky with a shrinking GDP, but don't you think that especially in that scenario that the big bully US, who has been happy to play rough many times before, and who still has plenty of bullets in the gun, will be dictating the terms?

The reason I'm scared is because I know that the US isn't afraid to play rough if need be, behind the scenes at first and more publicly as a last resort.

c1ue
09-19-09, 03:30 PM
It looks like a slow dance pull away to me, lasting years, without much of a strong arm heading in the direction of the US. The US has unilaterally defaulted before and the world watched and did nothing, and I bet it's going to happen again in a similar fashion.

I think you're having some pronoun difficulties.

The proximate cause of the strong arming is not going to be the rest of the world, it is the US itself.

Were the US a cooperative debtor, then a gradual easing into a more balanced situation between debtor and creditor would definitely occur. There would still be lots of suffering but it would be a 'lost decade' type - Japan or UK style - where an entire national population is debt enslaved to pay off its extravagances of the period before.

But between Obama, Bernanke, Geithner, and the big US banks and USIPs - the dancing is anything but slow.

Furthermore you still fail to respond to the facts I've laid out:

1) the previous US default was when the US was a net creditor to the rest of the world (70s abrogation of Bretton Woods)

2) The restructuring of Reagan era debt as exemplified by the Plaza Accords was also a debtor/creditor event which was relatively well managed and again the US was a net creditor.

3) The US ceased being a net creditor somewhere around 2005 and is now a net debtor. Other nations have much less to gain by cooperating than previously - in fact have much more to lose.

Warren Buffet noted in a series of public statements starting in 2003 that the US was losing (i.e. sending abroad) $3B/day between federal, trade, and interest costs ($1B/day/each).

http://www.berkshirehathaway.com/letters/growing.pdf

http://www.berkshirehathaway.com/2005arn/2005ar.pdf

That number is now somewhere between $5B/day and $8B/day. Should interest rates rise, expect corresponding increases in the daily nut.

The EJ article itself notes how debt levels have increased dramatically since only 2005.

So again I am confused how the past in any way leads to possible similar outcomes with today.

Jay
09-19-09, 03:55 PM
I think you're having some pronoun difficulties.

The proximate cause of the strong arming is not going to be the rest of the world, it is the US itself.

Were the US a cooperative debtor, then a gradual easing into a more balanced situation between debtor and creditor would definitely occur. There would still be lots of suffering but it would be a 'lost decade' type - Japan or UK style - where an entire national population is debt enslaved to pay off its extravagances of the period before.

But between Obama, Bernanke, Geithner, and the big US banks and USIPs - the dancing is anything but slow.

Furthermore you still fail to respond to the facts I've laid out:

1) the previous US default was when the US was a net creditor to the rest of the world (70s abrogation of Bretton Woods)

2) The restructuring of Reagan era debt as exemplified by the Plaza Accords was also a debtor/creditor event which was relatively well managed and again the US was a net creditor.

3) The US ceased being a net creditor somewhere around 2005 and is now a net debtor. Other nations have much less to gain by cooperating than previously - in fact have much more to lose.

Warren Buffet noted in a series of public statements starting in 2003 that the US was losing (i.e. sending abroad) $3B/day between federal, trade, and interest costs ($1B/day/each).

http://www.berkshirehathaway.com/letters/growing.pdf

http://www.berkshirehathaway.com/2005arn/2005ar.pdf

That number is now somewhere between $5B/day and $8B/day. Should interest rates rise, expect corresponding increases in the daily nut.

The EJ article itself notes how debt levels have increased dramatically since only 2005.

So again I am confused how the past in any way leads to possible similar outcomes with today.
The US has never been afraid to act in its best interest and will continue to do so. Most other contries have deferred to this behavior in the past. Bretton Woods/Plaza show that this is the case. Just because ithe US is now a debtor and not a creditor, there is no reason in my mind that this self-interested behavior won't continue. I think we may differ on what this means to USCorp going forward. It seems that you feel that the US options will be limited and that the rest of the world will have an enforceable claim on US wealth. I believe they do have a claim on that wealth and that the US will be wounded, I just think the US likely won't pay up and there is not much the world will be able to do about it and most everyone else will be hurt more.

There is no need to be supercilious. My intent is dialogue not confrontation.

ThePythonicCow
09-19-09, 04:40 PM
It seems that you feel that the US options will be limited and that the rest of the world will have an enforceable claim on US wealth. I believe they do have a claim on that wealth and that the US will be wounded, I just think the US likely won't pay up and there is not much the world will be able to do about it and most everyone else will be hurt more.When the ship's this far off keel, both sides drown :D.

Jay
09-19-09, 04:52 PM
When the ship's this far off keel, both sides drown :D.
Yeah, but the US will fire the torpedoes!

*T*
09-19-09, 06:33 PM
They could allow or - here's a thought - PROVOKE a slide in the US dollar, while maintaining the yuan peg - which would allow them to devalue the yuan in lockstep with the dollar while claiming total innocence. This would give them a further export advantage relative to Europe at a time when their exports were crashing, and at the same time stoke US demand for Chinese goods.

...

Maybe China accumulated those huge dollar reserves so they could engineer a long slow dollar slide by selling them off? Could they be that longsighted? Probably not, but they make wake up and realise what they are holding.

The mechanics of the peg requires buying treasuries to stop the yuan rising against the dollar, acting as a brake on the dollar devaluation, and keeping US rates low.

Given that China are using other tools to control the resulting internal inflation, like deposit requirements, what you say is plausible...

metalman
09-19-09, 06:41 PM
If readers like the format, we’ll do it again.
i like it. do it again.


Take California, the world’s seventh largest nation by GDP.

http://www.itulip.com/forums/../images/armssharemay2009.gif





Just under 70% of ARMS in California are Alt-A, so-called prime not sub-prime morgages.

http://www.itulip.com/forums/../images/calatepaymentmay2009.gif





As of May, 44% of those mortgages were technically in default, of 70% of all ARMS; about 30% of all ARMS are in default.

Meanwhile, unemployment continues to rise.
http://www.itulip.com/forums/../images/califorinaunemployment1976-Sept2009.gif

take california...

http://imgur.com/gutjR.gif

thedanimal
09-19-09, 07:02 PM
i like it. do it again.


Seconded! Great material clearly presented.

thousandmilemargin
09-19-09, 09:35 PM
How would the US devaluing its currency help China?


By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.



No one in China wants to see the fruits of the last decade+ significantly devalued away.


What were the fruits of the last decade? Technology transfer, the construction of a manufacturing base, increased global power and influence. The dollar hoard was just a means to an end. Like I said, they (China and Japan) PRINTED yuan and bought dollars. The exporters who actually earned the money swapped their dollars for Yuan and Yen long ago. The governments who now hold the dollars bought them with fiat currency (cost: zero). This wasn't an investment - it was an OPERATION, in the military/intelligence sense.

You should think of this as a mafia loan shark operation, not as being analogous to a stockholder/bondholder situation.

If the value in gold of the dollar hoard halves, that doesn't halve its political and strategic value.



As for devaluation being necessary - the question isn't whether the dollar devalues or not. The question is what the US' creditors are going to get.
......

These assets could be intellectual property, resources, income producing real estate, military bases, technology, or whatever.

Sure, if the US didn't need more money from its creditors then perhaps no assets would need to be surrendered.

But the US does need more, LOTS more.
..............



Monetarization. It's started, it is inevitable. The Chinese will make outraged noises about it, but since it is a slow form of national suicide they may also gloat in private. By acting outraged they can demand compensation in return for the loss of their investments - such as the right to invest in strategic US companies.
It's all about leverage - of the political kind.

Think of one of those political thrillers where nothing is what it seems, and you realise by the end of the movie that the main actors were playing a game entirely different than what their apparent actions would suggest.
"The Great Game", in this case.

You can see that the Chinese are long the US dollar by a trillion or so - but maybe behind the scenes they are actually short by several trillion more. What price do you put on superpower status?

Fiat Currency
09-19-09, 11:42 PM
By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.

What were the fruits of the last decade? Technology transfer, the construction of a manufacturing base, increased global power and influence. The dollar hoard was just a means to an end. Like I said, they (China and Japan) PRINTED yuan and bought dollars. The exporters who actually earned the money swapped their dollars for Yuan and Yen long ago. The governments who now hold the dollars bought them with fiat currency (cost: zero). This wasn't an investment - it was an OPERATION, in the military/intelligence sense.

You should think of this as a mafia loan shark operation, not as being analogous to a stockholder/bondholder situation.

If the value in gold of the dollar hoard halves, that doesn't halve its political and strategic value.

I was just talking about "technology transfers" in the Select forum recently. I find your comments here most interesting - as I've personally been involved in selling and implementing several technology transfers into China over the last several years.

This messed-up global fiat currency system is going to prove to have many unintended consequences. Globally.

ThePythonicCow
09-20-09, 02:22 AM
By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.

...
Your posts worth bottling, bloke.

(I hope I didn't just insult your wife or anything; I adapted that reply from an online Aussie phrase book. I don't really speak Aussie :D.)

Anyhow, the quality of your posts on this thread prompted me to go back and read your earlier iTulip posts. Good stuff. I look forward to more of your comments.

ThePythonicCow
09-20-09, 03:42 AM
Has it occurred to you that China may WANT the USA to devalue to dollar...or may eventually come to see that this is necessary?
They have an export dependent economy. Elsewhere you have suggested that if the old way of creating consumer demand by having the banks lend them money no longer worked so well, then we could keep things rolling a new way, by having the banks lend new money to the government (banks buy Treasuries) and the government use that money for whatever spending programs it can invent. Lordie knows governments can be quite creative when they are stressed to invent more ways to spend money.

One thing I don't get though. The Chinese export production capacity is focused on manufactured goods, especially consumer goods such as afluent Westerners might purchase. By the old way, there were many afluent Westerners (well, at least there were many spending as if they were afluent.)

But by the new way, most Westerners will feel poorer and spend less. Only a few (suspected to be corrupt) wealthy will still be spending on consumer goods in robust quantities. I don't see how money spent this new way flows through the majority of Western consumers to the Chinese factory worker as fluidly as it flowed the old way.

Won't this put a crimp in the export powered engine of China's economic miracle?

mooncliff
09-20-09, 09:21 AM
Real estate continues to drop in Japan... as it has for nearly two decades...



Thursday, September 17, 2009
Land Prices Fall At Fastest Pace In 5 Years

TOKYO (Kyodo)--Average commercial and residential land prices in Japan fell at the fastest pace in five years in the year to July 1 as the global recession forced businesses to shut down offices and stores and curbed demand for private housing, the government said Thursday.

The average nationwide commercial land price dropped 5.9 percent, declining for a second straight year, while the average residential land price fell 4.0 percent, down for the 18th consecutive year, the Ministry of Land, Infrastructure, Transport and Tourism said in an annual survey.

Only three of the around 23,000 locations in the annual land price survey recorded rises, the smallest number since the ministry started the survey in 1975.

Land price declines were conspicuous in metropolitan regions and large provincial cities.

''While businesses downsized or closed their offices and stores throughout Japan due to the global recession, housing demand also slackened,'' a ministry official said.

Average commercial land prices declined in the three metropolitan regions of Tokyo, Osaka and Nagoya for the first time in four years, falling 8.9 percent in the Tokyo region, 7.1 percent in the Osaka region and 7.3 percent in the Nagoya region.

The average commercial land price in other regions fell 4.9 percent, declining for the 18th straight year.

Average residential land prices declined in the Tokyo and Osaka regions for the first time in four years, falling 6.5 percent and 4.5 percent, respectively, while the Nagoya region saw a 4.2 percent drop, the first decline in three years.

In other regions, the average residential land price fell 3.4 percent, down for the 17th consecutive year.

Commercial and residential land prices declined in all of Japan's 47 prefectures.

Tokyo recorded the largest commercial land price drop of 10.8 percent, followed by 8.6 percent in Osaka Prefecture and 8.1 percent in Miyagi Prefecture.

As for residential land prices, Tokyo also registered the largest fall of 8.7 percent, followed by 6.2 percent in Ishikawa Prefecture and 5.4 percent in Saitama, Kanagawa, Toyama and Fukui prefectures.

Among major cities, Fukuoka saw the largest commercial land price decline of 15.9 percent, followed by central Tokyo with a fall of 14.0 percent, Nagoya with an 11.9 percent drop and Osaka with an 11.2 percent decline.

The highest commercial land price of 25 million yen per square meter was recorded in a location in Tokyo's Ginza district in Chuo Ward. A location in Tokyo's Chiyoda Ward had the highest residential land price of 3.02 million yen per square meter.

mooncliff
09-20-09, 09:33 AM
we've been over this before, no? the errors get fixed over time... a day or two after the initial publishing date. fred used the analogy of beta versions vs major release. why don't we all pm fred with errors we find instead of nitpicking them the thread? as a tech writer i can tell you, in 9,000+ words there will be errors even several editing passes vs a 500 word harvard biz review shorty. btw, i find spelling & grammar errors all the time in major newspapers & magazines.


Personally, I find the little typos kinda charming... the ideas are so clear and compelling, they are like the little nicks that the Chinese deliberately put on the bottom of fine porcelain... because perfect things are not of this Earth.

I do a lot of professional editing, and the only way I have found to minimize typos is to read and edit the final draft printed on paper. Trying to find typos on a computer screen does not work. I think there is some interaction with eye-flick blindness and flickering of the screen. Some of the things I have missed are just amazing.

Also, if you are using MS Word, even if you have grammar and spell check on automatic, you still may have to manually force the checks at the end by selecting from the menu. Word will then suddenly notice problems it did not flag previously.

we_are_toast
09-20-09, 09:36 AM
ND: Who’s doing a good job today?
EJ: The Wall Street Journal is doing a good job of covering the crisis now that it’s here. Plenty of thoughtful skepticism about the recovery. But the fact remains that the savings of a generation of our middle class was wiped out by the stock and housing bubbles. Failure by the media to expose the frauds while they were being perpetrated has caused millions to lose faith in the mainstream media.

ND: Who will take its place? Glenn Beck and Alex Jones?
EJ: The average American doesn’t know how to be intelligently skeptical. They lack the tools. Their schooling taught them to believe what they read in the paper and watch on TV and are told by anyone in a uniform or anyone who makes more money than they do. For example, the mortgage broker in a suit who told them not to worry about exaggerating income in order to qualify for a ridiculously huge mortgage. You can say these people were stupid for trusting the brokers and the appraisers and the lawyers and all of the other conspirators to the gigantic fraud that came to be known as the housing bubble, including the media that used to quote the National Association of Realtors as a source of information about the safety of housing as an investment. That’s journalism? But who is the public supposed to trust? No one? So now the public doesn’t trust anyone. Why should they? But in the wake of these frauds they lack the tools necessary for critical evaluation of even the most basic data about their economy, never mind complicated issues like monetary policy, inflation, and employment. In this environment guys like Glenn Beck and Alex Jones thrive.

ND: Where is this headed?
EJ: When the people lose faith, they do not then believe in nothing. They believe in anything. Between an oligarchic government controlled media and a public unable to distinguish between an argument made on evidence and one based on speculation, I believe we are heading into an era of rising nationalism and unreason unlike anything we have seen since the 1930s. The antecedents are exceedingly dangerous. Our polity can be whipped up into a frenzy to do just about anything.



We're not heading into an era of unreason, we're already there. Most of the MSM covers unreason in order to provide balance to reason. Some networks actually promote unreason! Unreason has reached deep into too many outlets of communication, even here at iTulip.

An uninformed or misinformed public, that elects it's leaders based on unreason is playing Russion Roulette with it's future. Seperation of media and oligarchy needs to be as important as seperation of church and state. Sources that promote misinformation need to be exposed and publicly discredited if a democracy hopes to continue.



I like the format of this piece, and as always, there's plenty of data supported content to think about and discuss.

FRED
09-20-09, 11:37 AM
Personally, I find the little typos kinda charming... the ideas are so clear and compelling, they are like the little nicks that the Chinese deliberately put on the bottom of fine porcelain... because perfect things are not of this Earth.

I do a lot of professional editing, and the only way I have found to minimize typos is to read and edit the final draft printed on paper. Trying to find typos on a computer screen does not work. I think there is some interaction with eye-flick blindness and flickering of the screen. Some of the things I have missed are just amazing.



I learned from a professional proof reader to read the copy backwards, sentence by sentence, from the end to the beginning. Thanks for the print and read trick!


Also, if you are using MS Word, even if you have grammar and spell check on automatic, you still may have to manually force the checks at the end by selecting from the menu. Word will then suddenly notice problems it did not flag previously.

Thanks for this tip, too!

c1ue
09-20-09, 03:06 PM
The US has never been afraid to act in its best interest and will continue to do so. Most other contries have deferred to this behavior in the past. Bretton Woods/Plaza show that this is the case. Just because ithe US is now a debtor and not a creditor, there is no reason in my mind that this self-interested behavior won't continue. I think we may differ on what this means to USCorp going forward. It seems that you feel that the US options will be limited and that the rest of the world will have an enforceable claim on US wealth. I believe they do have a claim on that wealth and that the US will be wounded, I just think the US likely won't pay up and there is not much the world will be able to do about it and most everyone else will be hurt more.


That a nation act in its own interest is not surprising. What I've laid out repeatedly is that the creditors to the US had more to lose in the past thus were willing to be 'taken advantage of' in the 70s (BW exit) and 90s (Star Wars debt restructure).

What you still have yet to answer is why these other nations would give the US another 'advantage' when there is negative net benefit in doing so.

You are simply reiterating the belief that EJ noted in the article: that the US as the biggest consumer can still get away by screwing its creditors/suppliers.

EJ in the article also noted that the US isn't going to be the biggest consumer anymore. US consumption is dropping and will continue to fall as long as the massive Internet/Real Estate/Obamafed debts continue.

And if you think other nations will just cough up their labor and materials under threat from the US military, well, you'd first have to show how the US gets out of Iraq and Afghanistan gracefully - i.e. not as an obvious loser.


By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.

This argument might be sensible for China, but China itself cannot fund the entirety of the US debt - not even half of it.

China's trade surplus with the US is probably only going to be around $200B this year - compared with $250B in 2008.

That's worth about 10 weeks of Treasury sales at the 'official' pace, and about 5 weeks worth at the $2T/year pace. And we have at least 15 months more to go at this pace.

Who is going to buy the remaining 42 or 47 weeks? The Fed's $300T facility is good for another three months.

Furthermore China has been overall maintaining or even dropping its overall US debt: China's corporate and agency bond holdings are in free fall.

Clearly China is not doing all it can to support the vast Obama spending.

While I've said in other posts that clearly China is going to 'play nice' by recycling its trade surplus with the US into bonds, it just ain't enough.

Even despite all this the reality is that China can both be a 'good' and a 'bad' creditor: it can both minimally fulfill its obligations as a US creditor AND benefit from other nations being the creditor whip hand - getting the cake and eating it too so to speak.


What were the fruits of the last decade? Technology transfer, the construction of a manufacturing base, increased global power and influence.

It depends on what your definition of technology transfer is.

If you mean factories to assemble iPods, then yes.

If you mean state of the art defense, electronics, biotechnology, etc etc - there are some examples but overall it is safe to say that the leading edge stuff is still very well controlled by the US technology transfer regulations. But then again, China doesn't need leading edge stuff to be a powerhouse exporter.

As for global power and influence - the dollar was indeed a means to China growing. I don't see how this makes any difference in the future though.

What has the US done for China lately?


If the value in gold of the dollar hoard halves, that doesn't halve its political and strategic value.


If this is true, then there is even LESS reason for China to help the US ease its devaluation transition.

But in point of fact China's government would face a lot of very difficult questions if it allows devaluation of its savings without a fight. Unlike the dumb people in the US, the people in China are well aware of larger geopolitical finance issues.


Monetarization. It's started, it is inevitable. The Chinese will make outraged noises about it, but since it is a slow form of national suicide they may also gloat in private. By acting outraged they can demand compensation in return for the loss of their investments - such as the right to invest in strategic US companies.
It's all about leverage - of the political kind.

Think of one of those political thrillers where nothing is what it seems, and you realise by the end of the movie that the main actors were playing a game entirely different than what their apparent actions would suggest.
"The Great Game", in this case.

You can see that the Chinese are long the US dollar by a trillion or so - but maybe behind the scenes they are actually short by several trillion more. What price do you put on superpower status?

I don't see what you're getting at. Is anyone outside of the stupid American public unaware that China is growing in financial and military power? That China is a threat to challenge for superpower status in the next 50 years?

The Yellow Peril was all the rage in the 1890s, for crying out loud.

And again, your fatuous assertion that monetization is inevitable doesn't answer the question of how it will occur: will it be in a manner beneficial to the US, or in a manner beneficial to the US' creditors?

I've never said that the US debt will not be deflated away in some manner. The sheer magnitude of the problem dictates some type of default will occur.

What I've said is that the US - being still dependent on foreign goods, foreign credit, and foreign goodwill on the interest being paid on existing debt - is no longer in control of how this default occurs.

The situation now is that the US is very much acting like North Korea.

North Korea: give us your money/oil/food or we'll shoot ourselves in the head via famine amongst the DPRK population and building nuclear bombs

US: give us your money/oil/food/manufactured goods or we'll shoot ourselves in the head via dollar devaluation and building a debt bomb

Last I looked North Korea's strategy has been...sub optimal. For the PRNK as a nation, for the DPRK's people, pretty much for anything/everything in the DPRK except the ruling class.

You're also ignoring the fact that China's trade with Europe is now larger than its trade with the US. Sure, losing some of its monopoly trade surplus with the US would hurt, but then again it is no longer the only game in town.

So I again await with bated breath for some facts to go with the talk.

atlantafox
09-20-09, 04:04 PM
Thanks for the tip...

Writing is an art form of communicating well with your intended audience. My concern is the overall quality and readability of EJ’s writing.

One consequence, for example, sometimes leads to ambiguous interpretations: easily confirmed by reading some of the posters who think EJ said one thing and other’s claiming EJ said something different. Others have expressed their own concerns to which I concur. Shouldn't we all inspire to higher standards of professionalism?

EJ is brilliant in understanding the underlying fundamentals of our financial malaise; however, writing is not his strong suit - leading to better comprehension for his reader. Having said this, let me offer a possible solution.

EJ lives in an area that boasts some of the best learning institutions in the world. Find a journalism student, possibly one who also minors in Economics to proof, before publishing. There is no need for me to list the benefits, which I hope, should be obvious.

jk
09-20-09, 04:12 PM
i do not believe that it is in the interest of ANY country for the dollar to be devalued in a "disorderly" way. that's the word they use in all the communiques, and i think that's the word they mean. every government likes to be in control. a disorderly devaluation may be defined as the loss of control by any and all parties.

Jay
09-20-09, 04:46 PM
What you still have yet to answer is why these other nations would give the US another 'advantage' when there is negative net benefit in doing so.
They don't need to give the US an advantage, it already has it. All of its debt is denominated in its own currency and it controls the lever of the press. The US took the advantage long ago.


And if you think other nations will just cough up their labor and materials under threat from the US military, well, you'd first have to show how the US gets out of Iraq and Afghanistan gracefully - i.e. not as an obvious loser.
I never said this would happen. We are heading toward an era of protectionism that every country is going to have to crawl out on its own from. That being said, every big player wants stability, and since the US holds the keys to the world's currency, it will continue to suck blood from everyone else until the dénouement of this currency chapter. That chapter will likely be very bumpy and could end quickly or slowly depending on the compliance of all involved and as long a black swan doesn't stir the pot. But make no mistake that all want stability and stability equals dollar control, hence more blood sucking. The ships may all sink, maybe even soon, although I doubt it as I see this as a multiyear event, but controlling the dollar is an enormous advantage. I don't see the US ship sinking by itself, do you?

ThePythonicCow
09-20-09, 05:51 PM
EJ lives in an area that boasts some of the best learning institutions in the world. Find a journalism student, possibly one who also minors in Economics to proof, before publishing. There is no need for me to list the benefits, which I hope, should be obvious. That would roughly match my experience. Editing is a talent, like many, possessed by few. Whenever I found a good one, I treated him or her kindly. No matter how closely I edited my work, a good editor easily found many "opportunities" for improving it.

centsless
09-20-09, 10:24 PM
Re: proofreading

Count every "F" in the following text:

FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...

How many did you count? Enjoy :)

And thanx again for a wonderful discussion. I find the ideas here so engrossing that errors do not distract in the slightest.

c1ue
09-20-09, 10:51 PM
They don't need to give the US an advantage, it already has it. All of its debt is denominated in its own currency and it controls the lever of the press. The US took the advantage long ago.


Again you fail to address the problem that the US needs $1B/day MORE debt to pay for its ongoing trade deficits, and $3B/day to $6B/day MORE debt to pay for US federal deficit spending.

In comparison existing debt service interest payments are only $1.5B/day or so.

Printed dollars WON'T work for these future payments unless the counterparties are willing to accept them.

I frankly cannot understand how this is an 'advantage'.


I never said this would happen. We are heading toward an era of protectionism that every country is going to have to crawl out on its own from. That being said, every big player wants stability, and since the US holds the keys to the world's currency, it will continue to suck blood from everyone else until the dénouement of this currency chapter. That chapter will likely be very bumpy and could end quickly or slowly depending on the compliance of all involved and as long a black swan doesn't stir the pot. But make no mistake that all want stability and stability equals dollar control, hence more blood sucking. The ships may all sink, maybe even soon, although I doubt it as I see this as a multiyear event, but controlling the dollar is an enormous advantage. I don't see the US ship sinking by itself, do you?

The other nations want stability but will not give up their own sovereignty in order to preserve it. For one thing, their own populations aren't going to accept that - or don't the events in Japan mean anything to you? The dismantling of a 53 year leadership?

As for the US sinking by itself - actually I DO see it happening. A mature and measured policy to handle the problems the US created for itself in the past decade or three would be one thing, but what we have seen and continue to see is anything but mature and measured.

Or will you argue that the TARP, the stimulus package (I), the big bankster bailout, the escalation of military activities in Afghanistan, and so forth are signs of a mature and measured US policy response?

ThePythonicCow
09-20-09, 11:33 PM
Re: proofreading

Count every "F" in the following text:

FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...


$ echo 'FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...' | sed 's/./&\n/g' | grep -c F
6

necron99
09-20-09, 11:50 PM
Absolutely fascinating comments on a very good post.

EJ asked about the format -- Like the others, I vote yes. I wouldn't want to see it dominate the site, but as an occasional tool for keeping things fresh, it's great. The interview format seems to encourage a slightly different viewpoint... perhaps, returning to the basics of the argument and/or taking into account the mixed degree of understanding of a broader spectrum of viewers... rather than the omniscient-narrator format. Works well, (but sometimes I also log on to iTulip to seek omniscience. :D )

The typos derail me for a few seconds, but they're not usually hard to figure out, nor are they usually so frequent as to be annoying. (Occasionally they are, but not usually.) A bit of editing might be an improvement, though. Perhaps Mooncliff's comments alone might do the trick!

herbkarajan
09-21-09, 01:54 AM
good read here "
The US Can't Unilaterally Inflate (http://ndknotepad.blogspot.com/2009/01/us-cant-unilaterally-inflate.html)"

http://ndknotepad.blogspot.com/2009/01/us-cant-unilaterally-inflate.html

Chris Coles
09-21-09, 07:46 AM
Absolutely fascinating comments on a very good post.

EJ asked about the format -- Like the others, I vote yes. I wouldn't want to see it dominate the site, but as an occasional tool for keeping things fresh, it's great. The interview format seems to encourage a slightly different viewpoint... perhaps, returning to the basics of the argument and/or taking into account the mixed degree of understanding of a broader spectrum of viewers... rather than the omniscient-narrator format. Works well, (but sometimes I also log on to iTulip to seek omniscience. :D )

The typos derail me for a few seconds, but they're not usually hard to figure out, nor are they usually so frequent as to be annoying. (Occasionally they are, but not usually.) A bit of editing might be an improvement, though. Perhaps Mooncliff's comments alone might do the trick!

Here in the UK it is usual for a senior exec to get themselves an Ace secretary; who in turn is worth their weight in pure Gold.. My fear is that pressurising him in this way might push EJ into trying to work with someone that inadvertently imposes THEIR interpretation of events upon the text. I remain convinced that we should recognise the slight imperfections as what they are; they personify EJ as an individual and the minor imperfections should be accepted for what they are, simply what he is. No different than whatever his facial features. He has created a World Standard venue for debate about economics and should be recognised for that, as an individual of great personality and standing..... warts and all.

Jay
09-21-09, 08:21 AM
good read here "
The US Can't Unilaterally Inflate (http://ndknotepad.blogspot.com/2009/01/us-cant-unilaterally-inflate.html)"

http://ndknotepad.blogspot.com/2009/01/us-cant-unilaterally-inflate.html
Oh, goodness, another deflationista article. Here's the punch line of the article:

The US must either:

1) Persuade China, Japan, and others to allow their currencies to appreciate dramatically so the US can abruptly default on some of its debt to them, and reduce their exports considerably;
2) Persuade China, Japan, and others to allow high domestic inflation. If the US wanted 12% inflation domestically (http://www.nakedcapitalism.com/2009/01/ny-times-china-cooling-on-us-debt.html), it might ask for 16% or 17% inflation in China, if not a bit more;
3) Do something crazy, like enact Smoot-Hawley Mark II and beat (http://chinabystander.wordpress.com/2008/12/21/latest-us-china-wto-trade-dispute-baffles/) each other up (http://www.guardian.co.uk/business/feedarticle/8167378) at the WTO;

4) Suffer through deflation.


How about

5) They print a lot of money and don't persuade anyone of anything but let the world come to them until they puke and then everyone loses, but the debts are wiped clean and we get a new multipolar currency regime that favors all of the big players, including China likely, and yet still sucks the blood out of third world countries. In the meantime all of the little people pray to god that no one does anything too stupid.

necron99
09-21-09, 11:15 AM
My fear is that pressurising him in this way might push EJ into trying to work with someone that inadvertently imposes THEIR interpretation of events upon the text... He has created a World Standard venue for debate about economics and should be recognised for that, as an individual of great personality and standing..... warts and all.

Agreed! I wouldn't want someone else to impose a different viewpoint onto EJ's work, although I'm perfectly happy to read separate pieces from different viewpoint. But I realize that this imposition can happen inadvertently. So, hey, Mooncliff and Fred had some good tips.

steveaustin2006
09-21-09, 01:08 PM
Take the commodity bull market in 2008, and especially oil. The weak dollar trend took oil from $16 to around $60. Wall Street then took it from $60 to $147. That game got cut off when capital inflows reversed. The liquidity drain crashed the securitized mortgage debt market in Q1 2007. The rest is history.

Surely, you must concede that soaring Asian demand between 2000 to present fueled by their own bubble economy, and as witnessed by low inventory levels across the board, did also account for some significant rise in energy, agriculture and base metals prices, also.

gugion
09-21-09, 01:23 PM
I really enjoy this interview-format and appreciate the more detailed answers and unique questions. In the standard format, I find myself coming up with questions I'd like to ask while reading, but may not be answered in the article. In this format, the "interviewer" has follow-up questions similar to those I come up with. Excellent article. Honestly, I would be lost without Itulip. Thank you for all you guys do.

c1ue
09-21-09, 02:22 PM
5) They print a lot of money and don't persuade anyone of anything but let the world come to them until they puke and then everyone loses, but the debts are wiped clean and we get a new multipolar currency regime that favors all of the big players, including China likely, and yet still sucks the blood out of third world countries. In the meantime all of the little people pray to god that no one does anything too stupid.

Wishful thinking doesn't make it so.

Certainly there is little evidence that the rest of the world is coming to the US to buy more crap dollar bonds... More like Central Bank of Zimbabwe style fiscal management.

http://online.wsj.com/article/SB1253...googlenews_wsj (http://online.wsj.com/article/SB125348691921426199.html?mod=googlenews_wsj)


Quote:
<TABLE cellSpacing=0 cellPadding=6 width="100%" border=0><TBODY><TR><TD class=alt2 style="BORDER-RIGHT: 1px inset; BORDER-TOP: 1px inset; BORDER-LEFT: 1px inset; BORDER-BOTTOM: 1px inset">In the second quarter, the most recent for which data is available, the Fed bought $164 billion out of the $339 billion in net new Treasurys sold.

In the mortgage-backed debt markets, the Fed has been buying upward of 80% of the bonds issued by agencies such as Freddie Mac and Fannie Mae.

Net issuance of fixed-income securities in the U.S. after the Fed's purchases is likely to have fallen by 25% in 2009 from last year to $843 billion, according to Barclays Capital estimates.</TD></TR></TBODY></TABLE>

Uncle Jack
09-21-09, 05:44 PM
Hello. I haven't chimed in here in quite a long time, mostly lurking, but I read EJ's post and then today I saw this:

http://edsworld.wordpress.com/2009/09/21/should-i-build-more-on-farm-storage/

Farmers are holding on to crops where possible awaiting the magic bus of inflation to show up. Not that I'm disputing what EJ has laid out here in this argument (fine job, too, by the way), but I have a distinct feeling that the "ka" phase is still ongoing and may be for some time.

Regards,
Uncle Jack

Slimprofits
09-21-09, 07:11 PM
True, but it’s important to remember that our economic relationship with Japan has been difficult since at least the Kennedy administration.

EJ are you familiar with this piece from George Washington University's National Security Archive?

A SECONDARY AFFAIR: AMERICAN ECONOMIC FOREIGN POLICY AND JAPAN, 1952-1968, Working Paper No. 9, Michael A. Barnhart, SUNY-Stony Brook

http://www.gwu.edu/~nsarchiv/japan/barnhartwp.html

Jay
09-21-09, 08:45 PM
Printed dollars WON'T work for these future payments unless the counterparties are willing to accept them.

I frankly cannot understand how this is an 'advantage'.
There are two issues here. The first is whether the US is good for its past debts. It is not and will pay them back with a greatly devalued dollar. They will then thank the world for an era of insane seigniorage with a big hairy moon.

The second is what becomes of the dollar as the world currency. I think we both agree, as does most of the world, that this currency era is closing. The real issue we are talking about is who is going to hold the most power in talks when a new currency is created. Your position, as best I can tell, is that the US is stuck not only because it owes huge past debts, but because it also, and probably more importantly, has continuing vast funding needs that can only be met with foreign capital injections. These injections are likely to stop at some point forcing the US to go cold turkey, which would be a pretty cold turkey indeed, or very hot depending on your view, but a shitty tasting turkey none-the-less. Your viewpoint is obviously more refined than that short synopsis.

My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

As things follow this path, the US will continue it's seigniorage and it will likely get worse. Everyone knows it and hates it but it's the only safe thing to do. There hopefully will be a slow unwind under continued dollar mastery until the final pop. Otherwise, nastiness. I actually wouldn't be surprised if at some point most of the world currencies engage in QE together as eventually it may become impossible to issue more debt. All of the options unfortunately leave most of the world destitute except those in power.


Or will you argue that the TARP, the stimulus package (I), the big bankster bailout, the escalation of military activities in Afghanistan, and so forth are signs of a mature and measured US policy response? Most of the players are greedy, fearful, power hungry monsters.

raja
09-22-09, 12:19 AM
I learned from a professional proof reader to read the copy backwards, sentence by sentence, from the end to the beginning. Thanks for the print and read trick!

I published a small magazine for 11 years -- 5000 circulation bimonthly, subscription and retail, mostly sold in health food stores and some of the big chains like Borders.

I did all the writing. In addition to using a grammar and spell checker, I used a text-reader program to read back text from the screen. I found that I could hear errors that I didn't catch visually. Also, after doing all that writing in a short period of time, it was good to rest my eyes and just listen. I speeded up the reader a bit so it wouldn't take long to listen to it all.

Regarding EJs typos, sometimes I have trouble understanding the meaning of the sentence in which the typo occurs.
If EJ used a screen reader to read back his writing, he would catch these errors, and it would take very little additional time . . . .

Here's a little text-reader program for $50: http://www.readplease.com/

mooncliff
09-22-09, 12:30 AM
Great idea!

In Mac OSX, the read aloud feature is included. You select the text you want read aloud, and you can vary the speed.

Also, as a further note about MS Word, sometimes it underlines a word in green, meaning there seems to be some kind of grammar problem, but the word that is underlined may not be the problem. The problem may be elsewhere in the sentence.

ThePythonicCow
09-22-09, 12:35 AM
I used a text-reader program to read back text from the screen. I found that I could hear errors that I didn't catch visually. Cool idea, raja.

I too occasionally find EJ's prouncements mystifying due to such infelicitous phrases. A text-reader might help EJ catch these, which would be goodness. The other punctuation and detail errors just add a little bit of "authentic home cooked flavoring" to his sumptuous seven course meals and are hardly worth fussing over for the present audience.

BrianL
09-22-09, 03:26 AM
Pythonic needs more Python.

"FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...".count("F")
>>> 6

;)

ThePythonicCow
09-22-09, 03:38 AM
Pythonic needs more Python.Yup, quite true.

Anyone out there want to hire a budding Python programmer?

I learned classic Unix shell commands (awk, sed, grep, tr, ed, wc, ...) back in the 1970's at Bell Labs, and have 30 years of very active experience in them. I compose such command lines as easily as I compose English sentences.

My Python experience is far less, I'm afraid.

Chris Coles
09-22-09, 04:00 AM
There are two issues here. The first is whether the US is good for its past debts. It is not and will pay them back with a greatly devalued dollar. They will then thank the world for an era of insane seigniorage with a big hairy moon.

The second is what becomes of the dollar as the world currency. I think we both agree, as does most of the world, that this currency era is closing. The real issue we are talking about is who is going to hold the most power in talks when a new currency is created. Your position, as best I can tell, is that the US is stuck not only because it owes huge past debts, but because it also, and probably more importantly, has continuing vast funding needs that can only be met with foreign capital injections. These injections are likely to stop at some point forcing the US to go cold turkey, which would be a pretty cold turkey indeed, or very hot depending on your view, but a shitty tasting turkey none-the-less. Your viewpoint is obviously more refined than that short synopsis.

My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

As things follow this path, the US will continue it's seigniorage and it will likely get worse. Everyone knows it and hates it but it's the only safe thing to do. There hopefully will be a slow unwind under continued dollar mastery until the final pop. Otherwise, nastiness. I actually wouldn't be surprised if at some point most of the world currencies engage in QE together as eventually it may become impossible to issue more debt. All of the options unfortunately leave most of the world destitute except those in power.

Most of the players are greedy, fearful, power hungry monsters.

I could not more profoundly disagree with this opinion. With the greatest of respects Jay, you have missed two very important points. 1. The US does not even have enough troops spare for Afghanistan, let alone take on the whole planet. 2. Which neatly brings me to the crux of the matter; we are not debating which individual nation is going to be in the firing line because it is very likely that every other nation is fed up to the back teeth with the arrogance of the US. In which case, you are suggesting that the US is about to go to war with the rest of the entire planet..... Yet, it does not have the troops to cover its adventure in Afghanistan.

Those two points neatly bring me to the next stage of this "affair" in that what is most likely to occur is that instead of one nation stepping into the firing line, they all will, to one extent or another, slowly at first until they all realise that, what you suggest might happen; is in fact bluster.... after which, I would give the matter perhaps another year or so to completely unwind. If I were the US I would learn, very quickly indeed; to tread VERY lightly from now onwards.

c1ue
09-22-09, 09:44 AM
My perspective is that if the US is ever bluntly forced with this stark of a choice it would be tantamount to war in the eyes of the administration and the world knows it. Cutting a tiger off from his meal is not a pleasant chore even if the tiger is long-in-the-tooth. Think of all the options the US can take to make life miserable for any other nation that confronts them in a hostile manner, which is what a disorganized currency collapse would be. Invading is the last thing they would do. Use your imagination.

Have no doubt that anyone intentionally destroying the dollar will put the US in this bind. Remember, this is a country which has had few, if any, reservations about being belligerent and self-serving in the past. And that is why we will have every country trying their Sunday best to prop up the dollar, just as they have been doing all along. There will also be every effort to slowly devalue the dollar in a calm and easy fashion. The alternatives aren't good for anyone, but are worse for the rest of the world.

Fair enough. It is clear that the substance of your belief is that the US can compel the rest of the world to toe the 'subsidize the US' or 'Global savings glut' line, whereas my view is that it is impossible to compel other nations to continue to give you stuff for free, much less trade amongst each other with your currency (hence subsidize you) if you are devaluing it.

Invading sounds nice, but invasions don't lead to more money for the US. Last I looked Iraq is still costing the US billions per month - even discounting the initial 'startup' cost.

http://usgovinfo.about.com/library/weekly/aairaqwarcost.htm



Summary of Iraq War Cost Estimates

CBO estimated the following costs for an Iraq war:

Initial deployment of troops: $9 billion to $13 billion
Conducting the war: $6 billion to $9 billion per month
Returning forces to US: $5 billion to $7 billion
Temporary occupation of Iraq: $1 billion to $4 billion per month
Afghanistan adds a similar monthly cost as Iraq's occupation. Of course you clearly also don't subscribe to Dr. Michael Hudson's analysis that US 'War on Terror' campaigns in Iraq and Afghanistan have been financed to date by foreign lending, and that foreigners failing to lend will in turn force hard budgetary reconsideration of US military expenditures.

Lastly you're still not understanding what I'm saying. The other nations aren't destroying the dollar - it is the US itself doing so.

All the other nations need to do is stay away and let financial gravity take its course.

Your assertion that other nations are trying to prop up the dollar - please show some evidence of this.

1) FDI flows are far below US funding needs
2) Dollar prices of commodities continue at high levels vs. 3 years ago
3) Trade levels between the US and ROW are down year on year both import and export

Where is the furious propping up of the dollar you speak of?

China pegging the RMB undervalued vs. the dollar is hardly a prop for the dollar - more like a remora.

Jay
09-22-09, 10:30 AM
1. The US does not even have enough troops spare for Afghanistan, let alone take on the whole planet. 2. Which neatly brings me to the crux of the matter; we are not debating which individual nation is going to be in the firing line because it is very likely that every other nation is fed up to the back teeth with the arrogance of the US.

Point 1.) Notice I said an invasion is the last thing they would do.

Point 2.) Agree everone is fed up, I am fed up too, I just think there are plenty of things the US can do that they are wary of.

Jay
09-22-09, 11:03 AM
Invading sounds nice, but invasions don't lead to more money for the US.
Again, invasion is the last thing they would do. You and Coles seem to think there are no alternatives in the middle that could scare the bejesus out of other countries. I don't feel that way.


Lastly you're still not understanding what I'm saying. The other nations aren't destroying the dollar - it is the US itself doing so.

All the other nations need to do is stay away and let financial gravity take its course.

Agreed that the US is weakening the dollar with its policies, but there has been no crash yet. I realize what the flows have been and that China's purchases have slid down the yield curve. But there has been no crash. If you are correct, we will have a unilateral crash because no one buys the enormous debt. Not only that, but that crash should happen soon. I'm not convinced that facing the option of a disorganized crash the US doesn't take further action. Right now continued slow devaluation is what they want and it is what they have been getting. If devaluation gets too rapid, my bet is they take measures to slow the slide and they may not be measures the rest of the world likes. Look what happened to the dollar when the Georgia tango with Russia heated up. In addition, one of the options may just be joint QE. All debts washed away, and jubilee. This just has to be done in as secret and controlled a manner as possible. I don't know if that route is possible, but it will be contemplated.

The US is a huge battleship, I don't see it sinking rapidly or easily. I do agree that it has likely reached its peak and that the salad days are over.

c1ue
09-22-09, 11:48 AM
Agreed that the US is weakening the dollar with its policies, but there has been no crash yet. I realize what the flows have been and that China's purchases have slid down the yield curve. But there has been no crash.

Past performance is no indicator of future behavior.


If you are correct, we will have a unilateral crash because no one buys the enormous debt. Not only that, but that crash should happen soon. I'm not convinced that facing the option of a disorganized crash the US doesn't take further action. Right now continued slow devaluation is what they want and it is what they have been getting. If devaluation gets too rapid, my bet is they take measures to slow the slide and they may not be measures the rest of the world likes.

A unilateral crash will occur if the US continues its spendthrift ways. The warnings from other nations and their actions have been very clear in the past year - but the US so far has not only failed to either reform, rein in spending, or sell its good stuff but rather has doubled (or more like 10X) down.

As for whether/what the crash will be - we know what it won't be: an outright default on debt payments.

We know what it will be: devaluation of the dollar. We don't know exactly when or how much and it is because of this that the possibility of a balance of payments crash exists (i.e. the dollars will there, but the creditors won't accept them).


Look what happened to the dollar when the Georgia tango with Russia heated up.

Sure, the dollar went up when the Olympic kickoff ceremonies in Abkhazia kicked off. The dollar also went up when the world markets crashed in both the 1st (Bear) and 2nd (Lehman, WaMu, Wachovia) 'credit crunches'.

Your view is this is some systemic feature; my view is this was a last reflexive action similar to mice addicted to crack hitting their crack levers.

Note how there was no talk last year about dollar devaluation or a US debt crisis - this time around even the MSM has shown hints of these topics. Will the world crack addicts hit the lever one more time? It is possible but equally possible that the habit is breaking.


In addition, one of the options may just be joint QE. All debts washed away, and jubilee. This just has to be done in as secret and controlled a manner as possible. I don't know if that route is possible, but it will be contemplated.

It would depend on who 'joint' is.

The US and UK are clearly QE-ing.

The EU is clearly not.

China is QE-ing, but has relatively little debt.

Japan has been QE-ing a little, but so far seem reluctant to extinguish their citizen's savings - in any case which their massive debt is internal whereas their massive savings are US Treasuries/dollars.

The rest of the world is mostly a creditor or neutral with the exceptions of Eastern Europe and the PIGS. These latter two will be constrained by the EU's policies.


The US is <S>a huge battleship</S>the Titanic, I don't see it sinking rapidly or easily. I do agree that it has likely reached its peak and that the salad days are over.

Quite true. It all depends on when/where you see the beginning.

From my view the iceberg has been hit and the deck chairs already in the 3rd dance. Only this time it is the bankers in the lifeboats and everyone else who is going to freeze/drown.

Jay
09-22-09, 12:38 PM
Past performance is no indicator of future behavior.
Agreed, and the only way we know the answer is time. Really, I think the difference is that I think the US has a few salvos left and you don't. I respect and understand that opinion and certainly allow the possibility in my thought process that the US is done sooner rather than later.


As for whether/what the crash will be - we know what it won't be: an outright default on debt payments.

We know what it will be: devaluation of the dollar. We don't know exactly when or how much and it is because of this that the possibility of a balance of payments crash exists (i.e. the dollars will there, but the creditors won't accept them).
Agreed.

Sure, the dollar went up when the Olympic kickoff ceremonies in Abkhazia kicked off. The dollar also went up when the world markets crashed in both the 1st (Bear) and 2nd (Lehman, WaMu, Wachovia) 'credit crunches'.

Your view is this is some systemic feature; my view is this was a last reflexive action similar to mice addicted to crack hitting their crack levers. Not only that there is a systemic self-righting component, but also that the US can tweak the response with various and sundry means.


Note how there was no talk last year about dollar devaluation or a US debt crisis - this time around even the MSM has shown hints of these topics. Will the world crack addicts hit the lever one more time? It is possible but equally possible that the habit is breaking. The 64,000$ dollar question. Or maybe 64 trillion dollar question is more apt.


Quite true. It all depends on when/where you see the beginning.

From my view the iceberg has been hit and the deck chairs already in the 3rd dance. Only this time it is the bankers in the lifeboats and everyone else who is going to freeze/drown. Not jtabeb!

c1ue
09-22-09, 01:46 PM
Not jtabeb!

In many respects I'm even more extreme than JT. He's got his gold/guns/groceries - if not the GRG55 bunker.

I, on the other hand, am already prepared to flee the country. Place to live, social circle and 1 year or more legal residency visas for 2 different nations. Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:

raja
09-22-09, 03:25 PM
In many respects I'm even more extreme than JT. He's got his gold/guns/groceries - if not the GRG55 bunker.

I, on the other hand, am already prepared to flee the country. Place to live, social circle and 1 year or more legal residency visas for 2 different nations. Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:While worst-case scenarios are of lesser probability (statistically speaking, being further from the mean), the actual experience of the worst-case scenario -- should it occur -- is many time more unpleasant than the less negative scenarios. Therefore, it behooves one to skew allocation of preparedness resources accordingly, i.e., more toward the worst-case scenarios than probability would suggest. jtabeb is certainly doing that, and I am too, although not in quite the same way that he is.

I am wondering c1ue . . . what if the "Titanic" did sink, how do you see other countries faring, particularly the ones you are considering as alternative living places?

I don't know which countries you've chosen, but I'm guessing Russia is one.
Although I have never lived there, my wife is Ukrainian, so I know a bit about things in that neck of the woods. Pretty scary, IMO. You know what I'm talking about.
So why would you feel (assuming I've guessed that location correctly) that living there would be better than in the U.S.?

To me, South America is also fairly unsettled . . . and with Europe's history of wars, I wouldn't want to be there, either.
Then, there is globalization of the economy. Many other countries are in financial trouble, not just us.
Also, the U.S. debt is just paper. If things drop to a relatively low level of civilization worldwide, and there is a huge reset, what have we really lost? Every country will nationalize the businesses on their soil, and we will do likewise with what we have left. Trade will resume at some point.

Because of its physical isolation, ample farmland, some oil, and a tradition of democracy (albeit degraded), I somehow have the feeling . . . or maybe it's just wishful thinking . . . that the U.S. might be the best place to be, all things considered. But obviously you feel differently, so I'd like to hear your perspective on it . . . .

Jay
09-22-09, 04:32 PM
In many respects I'm even more extreme than JT. He's got his gold/guns/groceries - if not the GRG55 bunker.

I, on the other hand, am already prepared to flee the country. Place to live, social circle and 1 year or more legal residency visas for 2 different nations. Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:
How come I don't think you are kidding about the Krug.

I've worked in Australia and have extensive contacts there. Short of a total meltdown, I could find my way back there with a good job. I obviously see the US as least wounded so don't plan on having to use the contacts, but it's best to plan ahead...

How do you keep your visa perpetually active? I've only had to get one and it expired after 6 months.

c1ue
09-22-09, 04:44 PM
How do you keep your visa perpetually active? I've only had to get one and it expired after 6 months.

Having a business there and/or a business that will sponsor you helps considerably.

And no, not kidding about the K. 15 years ago I'd carry a hundred dollar bill; today that Ben Franklin is about as useful as a quarter.


So why would you feel (assuming I've guessed that location correctly) that living there would be better than in the U.S.?

Russia is one, because Russia has the wonderful combination of a military that can't be messed with and a lot of oil/natural gas.

Certainly there are major structural issues with Russia's economy - the overweening bureaucracy among others - but from a safety perspective that's a good thing. If TSHTF, Russia is also probably one of the last nations on Earth that would honor US tax and extradition treaties.

This last matter is why South and Central America are right out. Simply too close and you generally have to fly through the US to get anywhere else.

The other nation is Japan. A large economy, crap military, but otherwise a pretty decent place to live.

China is right out because of the roach motel for money issue.

Europe isn't bad, but I think the economic problems are going to be severe there as well (PIIGS and Eastern Europe).

But ultimately the social circle is most important: having a group of people that like you and want you around.

Don't get me wrong - I'm not writing off the US even should TSHTF. It just may be 20 or 30 years before it is safe to return in that instance.

Think of 20 or 30 years of 70s style stagflation but without the corresponding wage inflation. Ugh.

jtabeb
09-22-09, 11:19 PM
In many respects I'm even more extreme than JT. He's got his gold/guns/groceries - if not the GRG55 bunker.

I, on the other hand, am already prepared to flee the country. Place to live, social circle and 1 year or more legal residency visas for 2 different nations. Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:

Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)

metalman
09-23-09, 12:07 AM
Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)

i'll pilot the remote control on the flying dildo that buzzes president wesley clark, who will be running the country at the time... to keep order... as he addresses the nation in our time of distress.

<object height="344" width="425">


<embed src="http://www.youtube.com/v/H02h0nGBryU&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>

video's from russia. where else?

Fiat Currency
09-23-09, 11:20 AM
Carrying around the Krugerrand to be able to bribe my way onto the last plane. :eek:

What ... only the one? :) I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

jpatter666
09-23-09, 11:40 AM
What ... only the one? :) I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

Long pause....

My wife works for an NGO and often travels overseas to, well -- hellholes. I'd never thought of having her do this, but it makes so much sense, I think we'll start.

Thanks for the idea.

vinoveri
09-23-09, 11:53 AM
...if only we print and borrow enough money to get households borrowing and buying again. The perpetuation of this delusion will end in tears.



EJ: In 2000 we did not completely accept the dedication of monetary authorities to act to halt asset price deflation in the FIRE Economy before it spills over into the Producer/Consumer Economy. We never doubted their ability, only the willingness to take it as far as they did because of the risks. To believe the Fed has limits is to not understand how modern credit and money work, or the relationship between asset prices and goods and services prices.

EJ: The Fed adds $1 trillion one side of the balance sheet and puts $1 trillion in asset-backed securities on the other. Where is the constraint? What's going to stop them? The Fed doesn’t have to back any of it with gold anymore as it did in the 1930s.






EJ: There will be a reset. You can count on that.
...
But I don’t see it happening. Where will the political will come from to do it when millions of home owners are complicit in the scheme?
Who wants to see the price of their home fall 70%? EJ: We’re sticking with our dollar 60 by 2012 forecast that we made in March 2009.




So the government subsidizes mortgages to try to re-inflate housing prices.

DN: Is it working?
EJ: How could it not work, at least in the short term? Throw enough money at anything and it will rise in price, if only for a while.

...
or the U.S. government runs out of credit and can’t continue financing the housing market.





The housing echo bubble will not last long without sustained government support or a robust improvement in jobs and incomes. We expect the reversion to the mean process to continue next year.

EJ: How? The housing bubble was financed with private credit issued by investment banks, purchased by foreign investors, and sold by unaccountable lenders, with an entire chain of craziness, from bent appraisers and real estate lawyers to over-zealous commercial banks.







This forecast is highly speculative because there is no way of knowing how the effect of the stimulus will express itself in stock prices, but I believe the principle is correct, just as the principle of debt deflation enabled us to accurately forecast the 40% decline in stock prices in 2008. But instead of two rallies we got one big one. We should have known.



Great piece! Thanks.

With respect, is it possible that your real world experience running real businesses and where p&L centers, financial statements, risk/rewards, etc., and the punishment of real failure for business mistakes are perhaps not allowing you to see that in fact another bubble can be started (and while it might not be the RE bubble of the past. asset prices can be stabilized and supported "indefinitely" (many years or even decades), in the surreal world we have woken up to.

Some of your commentary seems to allude to this uncertainty and certainly surprise as to what has gone on and continues (see above and below)

As long as the government can print, buy mortgages, equities, and whatever else it is doing behind the scenes (and the world continues to tolerate it), WHY ISN"T ANOTHER MULTI-YEAR BUBBLE LIKELY, even if it collapses the system ten-twenty years hence?

e.g.,
"we did not completely accept the dedication of monetary authorities to act to halt asset price deflation in the FIRE Economy before"
and perhaps we are underestimating their dedication and policy tools yet again?

"To believe the Fed has limits is to not understand how modern credit and money work"
if there are no limits to what the FEd can do, are there not no limits to what kind ot result can follow (including another bubble)?

"Where will the political will come from to do it when millions of home owners are complicit in the scheme?"
This is what disturbs me, b/c it is not the "citizens" against the gov and oligarchs, but rather one class of citizens, the savers, against another class ...


"Throw enough money at anything and it will rise in price, if only for a while." But maybe a long long while ... what limit would you place on "a while"?

"The housing echo bubble will not last long without sustained government support" but gov support can go on indefinitely (or at least until the authorities spot and imminent collaps, which could be another decade or 2 away)

"How? The housing bubble was financed with private credit issued by investment banks, purchased by foreign ...."
With government support that is not withdrawn

"This forecast is highly speculative because there is no way of knowing how the effect of the stimulus will express itself in stock prices,"
Agreed, no way of knowing, but can't we be fairly sure that gov printing will not result in equity asset deflation?

Thanks again for all your hard work. It is of great benefit.

Jay
09-23-09, 12:00 PM
Ha, I'll have you know that I'm PILOTING the last plane (only 75 seats left). (and YES, we DO ACCEPT Krugerrand, Maples, etc.)
Where's it going, how many ounces, and can I get on the list? ;)

c1ue
09-23-09, 12:48 PM
What ... only the one? :) I carry 5 Maple Leafs now wherever I go Internationally. 3 years ago one our partners' appendix burst while we were in Africa. Had to use them to "convince" somebody to get us to help. It's amazing how little you value a few ounces of gold when somebody you care about is in trouble. It all worked out, and he paid me back in Platinum. Now all our senior people travel with a little metal. ;)

Were I travelling through Africa, possibly I would consider carrying more.

Not for the reason you stated although it is quite valid - but that in Africa a lot more people keep their valuables in things like jewelry and PMs. Thus a single Krugerrand might not be as exceptional as it is in the US. How many people carry a tradable gold piece in the US? Perhaps 0.01% - the doomster nut jobs like myself.

The other factor is if you carry too much, you potentially mark yourself for armed robbery. Kind of like wearing a big gold chain in a bad part of town; the gangsters have the guns to protect their bling but I don't want to be part of that game.

Finster
09-23-09, 07:10 PM
By reducing the debt to GDP ratio and allowing the US to limp along for longer, so the transfer of technology to China can continue. It also assists in the long term decline of US global power, which has strategic value for China.

And by the way US leadership is conducting public policy, you'd think it had strategic value for the US...

tojaktoty
09-24-09, 11:02 PM
Food costs less, and our food supply is far safer than it was 60 years ago, despite what you might read.

EJ, what exactly do you define as 'food supply' and how do you qualify 'safety' in respect to said supply? What set of facts led you to such a conclusion?

The fragility of certain contemporary systems has made me critical of the sustainability of certain forms of agriculture, food processing and distribution characteristics. Does a false sense of security exist or is the 'food supply' resilient to exogenous elements (read: collapse of FIRE)?

I am open to others' opinions on this matter too.

Chris Coles
09-25-09, 05:19 AM
EJ, what exactly do you define as 'food supply' and how do you qualify 'safety' in respect to said supply? What set of facts led you to such a conclusion?

The fragility of certain contemporary systems has made me critical of the sustainability of certain forms of agriculture, food processing and distribution characteristics. Does a false sense of security exist or is the 'food supply' resilient to exogenous elements (read: collapse of FIRE)?

I am open to others' opinions on this matter too.

The more food supply becomes concentrated with far fewer organisations involved, the closer we come to the point where something causing the gigantic food distribution centres involved to cease to function, the closer we are to a complete collapse of the fundamental structure we call society. In the not too distant past, we had many food distribution capabilities, but today, here in the UK for example, small retail shop outlets are declining at an alarming rate and being replaced with only five major companies. Asda, Tesco, Sainsbury's, Waitrose and Morrison; each with very large, but small in number, distribution centres. History shows, again and again, that concentration of supply has many dangers. Recently, NASA has shown the compelling danger of a potential for loss of electricity supply by a forced breakdown of the transmission infrastructure caused by a Solar storm. Again, a major pandemic might also cause that distribution system to collapse. Again, as the population inexorably increases, our dependence upon imported food also adds to that potential for instability. Take a look at any major city where the population entirely depends upon a continuance, day by day, of external food supply that cannot be replaced by internal production. IMHO sometime soon, something is going to occur that will break the distribution chain and then we may see a panic that will bring home to the city dweller just how unstable their food supply is, and, just how little could be done to bring it back online....

ThePythonicCow
09-25-09, 10:57 AM
that concentration of supply has many dangersI am less worried about this one. Simple physical concentration does not present much additional risk in my view, except for a few threats, such as say terrorist bombings. Even that risk is minimal until we're so concentrated that taking out just two or three warehouses would be able to starve many people for a prolonged time. We're not that concentrated.

Food warehouses are simple things. A few people with modest training can get the food in and out of them with tolerable efficiency. Food warehouses are also fairly redundant and fairly adaptable. One could cover for another, and any could adapt their workload to more critical items.

Let me put this another way. To conduct useful threat analysis, one needs to identify failure mechanisms. Simply noting one risky sounding factor, without identifying mechanisms by which that factor leads to failures and estimating the likelihood of those mechanisms, can be misleading.

The risk factor that worries me the most is the government. A few stupid policy changes, such as food supply destruction as an unintended consequence of price controls, can have systemic affects on gross food supply.

ggirod
09-25-09, 11:26 AM
Let me put this another way. To conduct useful threat analysis, one needs to identify failure mechanisms. Simply noting one risky sounding factor, without identifying mechanisms by which that factor leads to failures and estimating the likelihood of those mechanisms, can be misleading.


Here are a few mechanisms, many of which occur in localized situations but have minimal impact on the distributed food supply...

Threats:
1. Localized illness / strikes / civil unrest
2. localized lack of Electricity / lack of hydrocarbon fuels / refrigeration
3. Infestation with molds, pests, etc.
4. Terror via contamination / destruction
5. widespread contamination via mixing one contaminated product with similar products from different sources


Problems
1. Lack of competition between vendors
2. Decline of quality as high quality goods are diverted to some markets, remainder to others and no competition to stop it.
3. buyer monopoly - only one buyer for commodity > lower prices > supply destruction
4. retailer monopoly - no matter where you buy it is the same stuff at same price
5. likely confounding of product / batch traceability as product is mixed at the single point
6. scope of any sanitation / health regulation violation / process problem becomes orders of magnitude bigger.

I hope this helps.

ThePythonicCow
09-25-09, 02:05 PM
Here are a few mechanisms, many of which occur in localized situations but have minimal impact on the distributed food supply...Sure, there are always many things that can fail. But in fairly simple systems with a fair bit of redundancy, such failures tend not to cascade and can be worked around. If the local Kroger markets have a massive supply disruption, we can still buy food at WalMart or Albertson's, even if we have to suffer through a few weeks of some shelves being bare. If this food is polluted, buy that food. There might not be nearly as much redundancy in the food chain as in the past, but there is still sufficient redundancy to easily survive some outages without mass starvation.

Our financial, military, legal and political systems present the systemic risks to American prosperity and freedom, not our food system. The main threat presented by the food system is too many overweight people suffering from chronic illness.

The countries that face severe food shortages are those that cannot grow nearly enough food domestically to feed their population and that risk not being able to afford food imports.

steveaustin2006
10-02-09, 11:31 AM
The 1980s bubble and crash [in Japan] was also a product of U.S. policy.

I think this is reaching. For an account of just how bubble evolved and was perpetuated through Japan's deep ties between the corporate, banking and political sector read Edward Chancellors excellent chapter on Japan in Devil Take the Hindmost: A History of Financial Speculation (http://www.amazon.ca/Devil-Take-Hindmost-Edward-Chancellor/dp/0452281806).