metalman
10-25-07, 04:02 PM
jim sinclair sez: (http://www.jsmineset.com/home.asp?RQ=EDL,1&sPID=0&linkid=3806)
First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
The formula economically is inherent in #2 which is lower economic activity equals lower profits.
Lower profits leads to lower Federal Tax revenues.
Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension. Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
ka-poom theory sez:
National currencies are primarily valued by the relative economic strength among trading partners with floating currencies, except for the U.S. dollar.
A major component of dollar strength is the unique demand for dollars due to the dollar's reserve currency status.
Dollar demand and thus price is supported by all nations trading with the U.S. and among each other as all need dollars for international exchange, especially for oil.
If dollar reserve currency status declines, either gradually via euro diversification or suddenly due to an event that causes a loss in confidence in the future purchasing power of the dollar, dollar demand and value declines in kind.
U.S. interest rates are low mostly due to demand for U.S. debt, denominated in dollars, from foreign central banks of nations, especially Asian, that seek to keep U.S. consumers borrowing at low interest rates to purchase their exports using strong dollars; Asian "vendor financing".
Ka: A random exogenous event (e.g., a stock market crash predicted in 1999 for year 2000 and recession predicted for 2001) intensifies disinflation created by Asian vendor financing, causing the Fed to shift from bubble fighting to anti-deflation polices.
Fed responds with an excessive cheap money policy, targeting short term rates below the inflation rate.
The Fed keeps interest rates too low for too long, creating a new asset bubble. But in what? We did not know in 1999. The answer: real estate.
Poom: A random or not so random (file:///Users/na/Documents/%21itilip.com/Pages/index.htm#Disasters_R_Us) exogenous event that has not yet happened (the stock market crash we predicted for 2000 did not have the impact we expected) exposes the true level of risk to lenders that is inherent in this unbalanced system, causing lenders to loose confidence in the future purchasing power of the dollar and seek alternative reserve assets.
Interest rates and inflation rise rapidly as dollar demand and value falls, import prices rise, and the Fed moves to raise rates to stem the tide or dollar repatriation.
The first foreign central banks to move will be those with the least exposure to losses in national income from sales of exports to the U.S. or depreciation in the value of the dollars they are holding as reserve assets (e.g., France).
Not surprisingly, the Fed disagrees: "To sum up, this analysis suggests that there is more to solving the conundrum of the recent low long-term interest rates than pointing to the behavior of official foreign purchases of U.S. Treasury securities. Indeed, there is little solid evidence suggesting a persistent relationship between the two. Furthermore, the structure of the Treasury market does not support the projection of a rapid rate hike in the event that foreign central banks retreat from the U.S. Treasury market." The Long-term Interest Rate Conundrum: Not Unraveled Yet? (http://www.frbsf.org/publications/economics/letter/2005/el2005-08.html)
The assertion of no persistent relationship exists between low interest rates and foreign purchases of U.S. Treasury securities contradicts the fact that Central Bank reserve diversification spooks currency traders (http://www.dailyfx.com/story/strategy_pieces/trade_or_fade/135_central_bank_reserve_diversification_spooks.ht ml), and will drive the dollar down, which is in fact finally causing U.S. inflation and interest rates to rise.
The Fed continues to raise rates, but not to fight inflation caused by economic overheating. The Fed needs to demonstrate anti-inflation vigilance to foreign lenders so they will continue to fuel the foreign capital addicted U.S. speculative financial system, but raises rates at the risk of throwing the real economy into recession. Unfortunately, it’s a lose-lose proposition. Eventually the hikes, either too many or too few -- the Fed never gets it right -- will produce either a enough recession or inflation to spook foreign investors and start the Poom ball rolling.
The mechanism of Ka-Poom Theory proposed in 1999 appears happening, albeit later than we predicted, and slowly versus suddenly. At least so far.
The resulting inflation is an event 25 years in the making, and will be historic in its extent.both say gold should be kicking ass.... and it is!
First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
The formula economically is inherent in #2 which is lower economic activity equals lower profits.
Lower profits leads to lower Federal Tax revenues.
Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension. Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
ka-poom theory sez:
National currencies are primarily valued by the relative economic strength among trading partners with floating currencies, except for the U.S. dollar.
A major component of dollar strength is the unique demand for dollars due to the dollar's reserve currency status.
Dollar demand and thus price is supported by all nations trading with the U.S. and among each other as all need dollars for international exchange, especially for oil.
If dollar reserve currency status declines, either gradually via euro diversification or suddenly due to an event that causes a loss in confidence in the future purchasing power of the dollar, dollar demand and value declines in kind.
U.S. interest rates are low mostly due to demand for U.S. debt, denominated in dollars, from foreign central banks of nations, especially Asian, that seek to keep U.S. consumers borrowing at low interest rates to purchase their exports using strong dollars; Asian "vendor financing".
Ka: A random exogenous event (e.g., a stock market crash predicted in 1999 for year 2000 and recession predicted for 2001) intensifies disinflation created by Asian vendor financing, causing the Fed to shift from bubble fighting to anti-deflation polices.
Fed responds with an excessive cheap money policy, targeting short term rates below the inflation rate.
The Fed keeps interest rates too low for too long, creating a new asset bubble. But in what? We did not know in 1999. The answer: real estate.
Poom: A random or not so random (file:///Users/na/Documents/%21itilip.com/Pages/index.htm#Disasters_R_Us) exogenous event that has not yet happened (the stock market crash we predicted for 2000 did not have the impact we expected) exposes the true level of risk to lenders that is inherent in this unbalanced system, causing lenders to loose confidence in the future purchasing power of the dollar and seek alternative reserve assets.
Interest rates and inflation rise rapidly as dollar demand and value falls, import prices rise, and the Fed moves to raise rates to stem the tide or dollar repatriation.
The first foreign central banks to move will be those with the least exposure to losses in national income from sales of exports to the U.S. or depreciation in the value of the dollars they are holding as reserve assets (e.g., France).
Not surprisingly, the Fed disagrees: "To sum up, this analysis suggests that there is more to solving the conundrum of the recent low long-term interest rates than pointing to the behavior of official foreign purchases of U.S. Treasury securities. Indeed, there is little solid evidence suggesting a persistent relationship between the two. Furthermore, the structure of the Treasury market does not support the projection of a rapid rate hike in the event that foreign central banks retreat from the U.S. Treasury market." The Long-term Interest Rate Conundrum: Not Unraveled Yet? (http://www.frbsf.org/publications/economics/letter/2005/el2005-08.html)
The assertion of no persistent relationship exists between low interest rates and foreign purchases of U.S. Treasury securities contradicts the fact that Central Bank reserve diversification spooks currency traders (http://www.dailyfx.com/story/strategy_pieces/trade_or_fade/135_central_bank_reserve_diversification_spooks.ht ml), and will drive the dollar down, which is in fact finally causing U.S. inflation and interest rates to rise.
The Fed continues to raise rates, but not to fight inflation caused by economic overheating. The Fed needs to demonstrate anti-inflation vigilance to foreign lenders so they will continue to fuel the foreign capital addicted U.S. speculative financial system, but raises rates at the risk of throwing the real economy into recession. Unfortunately, it’s a lose-lose proposition. Eventually the hikes, either too many or too few -- the Fed never gets it right -- will produce either a enough recession or inflation to spook foreign investors and start the Poom ball rolling.
The mechanism of Ka-Poom Theory proposed in 1999 appears happening, albeit later than we predicted, and slowly versus suddenly. At least so far.
The resulting inflation is an event 25 years in the making, and will be historic in its extent.both say gold should be kicking ass.... and it is!