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EJ
09-13-06, 10:10 PM
IMF Identifies Risk of `Disorderly' U.S. Dollar Drop (http://www.bloomberg.com/apps/news?pid=20601085&sid=aYXu7ScpRXC4&refer=europe)
September 13, 2006 (Bloomberg)

A "disorderly'' drop in the dollar is the biggest risk to world financial markets, the International Monetary Fund said, urging policy makers to prepare and act quickly when asset prices slump.

Investors are buying U.S. bonds under the assumption that the dollar won't slide, and a drop in the currency might turn into a rout as foreign investors and central banks move to cut losses, the global financial watchdog said.

"A low-probability but potentially high-cost risk to the global financial system is that a dollar decline could become self-reinforcing and hence disorderly,'' the IMF said in its Global Financial Stability Report today.

Last week, IMF Managing Director Rodrigo De Rato singled out lopsided global trade and investment flows, protectionist sentiment and high energy prices as sources of concern to an otherwise benign outlook for the global economy. The IMF says the U.S. current account deficit, running at a record rate, needs to narrow.

AntiSpin: The "Poom" in Ka-Poom Theory, first proposed in 1999, is fueled by a disorderly, self-reinforcing decline in the dollar. The fact that the IMF is issuing a public warning on this "remote" possibility means that the boys at the IMF believe that USA, Inc. has a couple of bad quarters coming – a recession – in its near term future. Given data provided today by our resident real estate expert, Sean O'Toole, future recession is a safe bet.


http://www.itulip.com/images/foreclosurestats.png
N. CA Foreclosure Stats (http://www.itulip.com/forums/showthread.php?t=179)


The love expressed by foreign central banks for shares of USA, Inc., the US Bonar*, in the form of US financial assets, is proportionate to the ability of the US consumer to covert said loans into purchases of lenders' exports. The extent of this love is expressed clearly by iTulip contributor Aaron Krowne, below.


http://br.endernet.org/%7Eakrowne/econ/charts/nfp_all_dollar.png

AutoDogmatic (http://www.autodogmatic.com/index.php/sst/2006/09/12/greenbacks_securities_and_confidence_in_)


The US consumer is losing the ability to satisfy the Bonar buyer because he's running short of cash-out refi money. As the chart by O'Toole above shows, twice as many consumers are in danger of getting thrown out of the house they purchased with a suicide loan compared to a year ago. The picture below shows that holders of said suicide loans are concentrated in areas where the most real estate speculation has occurred.


http://www.itulip.com/images/mapofmisery.png


Affection for Bonars will shift to more attractive shares, such as those issued by Euro, Inc. Not that Euro, Inc. is a better run business than USA, Inc., and housing bubbles are collapsing there as well. But euro shares are issued according to bureaucratic rules, whereas shares in USA, Inc. are issued in quantities determined more by the relationship between the geeks (http://www.itulip.com/forums/showthread.php?t=383) with their hands on the "print" lever and the jocks with their hands on the "spend" lever. Sometimes the relationship is not too healthy.


http://www.itulip.com/Pics/FedFuture.gifhttp://www.itulip.com/Pics/NixonBurns.gif


The IMF knows that no holder of piles of Bonars, such as China or Japan, wants to see the value of their Bonar reverves decline, so they will never sell. The optimists refer to this as a "balance" whereas we refer to it as Economic Mutually Assured Destruction (http://www.itulip.com/forums/../economicMAD.htm). The realists understand that should foreign lenders fall out of love with shares of USA, Inc., the Bonar, because the US consumer can't continue buying the flat panel TVs the lenders are selling using the cash he pulls out of his home equity or the revolving credit supplied by US PayDay Loan banking system, the Oh yes, it can happen here (http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/01/26/oh_yes_it_can_happen_here/) event happens.

Among the lenders the optimists assume will never sell, a race to the bottom begins in the manner of the currency crisis in Asia in 1997 – last guy out's a rotten egg. But actually selling is not necessary to create problems. If foreign purchasers of US assets merely slows and the rate of purchases decline from their current lofty rate of 80% of issuance to, say, 60% as in the year 2000, the self-reinforcing dynamic that the IMF warns about might begin: US interest rates climb and the US Bonar declines, US consumption of exports further declines as imports become more expensive and consumers have less access to cheap credit, making Bonar denominated assets less attractive for foreign lenders, and so on. The traditional method of ending such a cycle when it has happened in other countries: the central banks cranks up interest rates, which tends to slow the economy even more and make matters worse.

* Bonar: From now on, the US dollar will be referred to on iTulip.com as the Bonar, a name given to the dollar by forum poster brian4 on indexcalls.com. The dollars you spend today have little in common with the dollars of old, except in name. The power of the US dollar brand remains, but the quality behind the brand was long ago squandered.


http://www.alwayson-network.com/images/uploads/AG20bw.jpg
Bonar (http://www.itulip.com/forums/showthread.php?p=2644)

jeffolie
09-14-06, 02:07 PM
THE FED'S PLAN TO LET HOUSING CRASH AND SAVE THE DOLLAR

They will deflate by having the overseas investors taken down while sparing the T-bill market with the "NewBank". In a flight to safety investors will jump on treasuries strengthen the dollar and crashing gold.

The first US bank to go down will be JP Morgan. Over 800 US banks hold derivatives. Check out: http://www.occ.treas.gov/ftp/deriv/dq305.pdf You'll see that the amount of derivatives in "insured" commercial bank portfolios increased by $2.6 trillion in the third quarter of 2005, to a whopping $98.8 trillion. 98% of these are concentrated in 5 banks. Total assets of these top 5 banks is $3.3 trillion if I am reading the chart correctly. Just look at the charts like the year ends 91-2004 chart (Graph 3) and you'll see a chart shooting straight to the moon. Maybe these bankers are smarter then me, but this is a house of cards in my book.


Most of the $570 trillion in derivatives are held by overseas investors. These will collapse from the housing bust causing defaults. The default follow like dominos to mortgage backed securities, then collaterized debt obligations and lastly to derivatives.

Controlled deflation will be the Fed's goal so that the dollar will rise. This will help the US government as investor, institutions and countries buy Treasuries as a safe haven. US Treasuries held as reserves will not be sold off (by China and Japan) avoiding a dollar devaluation. Win -Win for the Feds. Lose-lose for derivatives, MBS (which are explicitly not backed by the US).

Controlled deflation is the Fed best choice among bad choices.

jk
09-14-06, 02:57 PM
THE FED'S PLAN TO LET HOUSING CRASH AND SAVE THE DOLLAR

They will deflate by having the overseas investors taken down while sparing the T-bill market with the "NewBank". In a flight to safety investors will jump on treasuries strengthen the dollar and crashing gold.

The first US bank to go down will be JP Morgan. Over 800 US banks hold derivatives. Check out: http://www.occ.treas.gov/ftp/deriv/dq305.pdf You'll see that the amount of derivatives in "insured" commercial bank portfolios increased by $2.6 trillion in the third quarter of 2005, to a whopping $98.8 trillion. 98% of these are concentrated in 5 banks. Total assets of these top 5 banks is $3.3 trillion if I am reading the chart correctly. Just look at the charts like the year ends 91-2004 chart (Graph 3) and you'll see a chart shooting straight to the moon. Maybe these bankers are smarter then me, but this is a house of cards in my book.


Most of the $570 trillion in derivatives are held by overseas investors. These will collapse from the housing bust causing defaults. The default follow like dominos to mortgage backed securities, then collaterized debt obligations and lastly to derivatives.

Controlled deflation will be the Fed's goal so that the dollar will rise. This will help the US government as investor, institutions and countries buy Treasuries as a safe haven. US Treasuries held as reserves will not be sold off (by China and Japan) avoiding a dollar devaluation. Win -Win for the Feds. Lose-lose for derivatives, MBS (which are explicitly not backed by the US).

Controlled deflation is the Fed best choice among bad choices.
please explain why you think controlled deflation is the fed's best choice. i would say moderate inflation is their best choice. the debt at the household and governmental level and the unfunded liabilities at the corporate and governmental level are such that moderate inflation would be quite helpful. it's hard to see the bank failures and debt defaults you mention as preferable. certainly since 1987 the reaction to crisis has been to pump liquidity. letting the dollar fall would also help ameliorate the trade and current account deficit. and letting the dollar fall is far more politically acceptable than system-wide bankruptcies. am i missing something?

akrowne
09-15-06, 10:19 AM
> They will deflate by having the overseas investors taken down while sparing the T-bill market with the "NewBank". In a flight to safety investors will jump on treasuries strengthen the dollar and crashing gold.

If overseas investors are "taken down" then there would be an immense flight to gold anyway. Right now I think there is a huge amount of central bank restraint from diversifying reserves into gold precisely because no one wants to be the first to trigger the US dollar collapse. But if they were all shafted abruptly, this restraint would evaporate.

Even if the Treasury Security market is held sound for domestic investors, it will take immense real money creation (inflation) to prop it up. Deflating the real economy would cause Great Depression-level misery. The housing collapse will already be pretty close, and I expect lots of inflation to ensue in the general bailout, out of necessity.

art
09-16-06, 03:28 PM
* Bonar: From now on, the US dollar will be referred to on iTulip.com as the Bonar, a name given to the dollar by forum poster brian4 on indexcalls.com. The dollars you spend today have little in common with the dollars of old, except in name. The power of the US dollar brand remains, but the quality behind the brand was long ago squandered.[/B]


If you made a Wikipedia entry for this, you'd have a chance of having it adopted more widely :-)

Island Girl 7
09-16-06, 06:27 PM
You mention JP Morgan will be one of the first banks to go down. Unfortunately my mortgage company was just bought up by them. Any recommendations?

jk
09-16-06, 07:34 PM
You mention JP Morgan will be one of the first banks to go down. Unfortunately my mortgage company was just bought up by them. Any recommendations?

assuming "my mortgage company" means the mortgage company which issued you the loan, there is no problem for you. some entity will be there to collect your debt payments. if, on the other hand, "my mortgage company" means the company you used to own, and you now hold morgan stock, sell.

Rajiv
09-16-06, 09:06 PM
Good article (http://www.atimes.com/atimes/Global_Economy/HI09Dj01.html) in Asia Times on "America's unreal estate problem"


We believe a pronounced housing slowdown in the US will be followed by localized declines in mean residence prices. Given the exaggerated macro-benefit that robust housing appreciation, refinancing and associated activity have had, we are looking for a virtuous cycle to turn vicious, with national and international implications. Low- and middle-income Americans will have to cut back on all forms of discretionary spending. The heavy dependence of this group on imports will likely mean reduced US export earnings and increased price pressure for non-US export-oriented firms and regions.

What is good for housing may have been good for the United States. Likewise, the return of reality to real estate will exert a pronounced downward pull on national economic performance and have global economic implications.