You're now on the archive server. Commenting has been disabled.
Guest Post: Apocalypse Not: The Dollar
Submitted by JM
Happy Holidays and God bless. If the season brings you peace, congrats. If the year has been painful on the job or financial front, accept my sincere wishes that the coming one brings better times.
It’s the holiday season: whoop-dee-doo and conspiratorially enjoying KOSHER wine, not getting up early to watch Bloomberg (sorry Scarlet), and in general dispelling gloom. I can’t offer anyone gloom-dispelling economic data, because I don’t see much but government socialism coming out of Pandora’s Box. I do offer data that moderates fears of a specific kind of apocalypse: a currency crisis.
The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won’t happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?
Because those distinctly American circumstances don’t incorporate a wide enough range of vision. The issue isn’t about the United States in a vacuum. It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral. Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall. As old as history itself is the truth that the last ones standing claim the spoils of victory. The United States has the 61st highest public debt ratio in the world.
I built a model to understand currency crisis events better using data from fourteen financial crises occurring in the last 25 years. The data used admits no examples of total military demolition or war, although such crises naturally accompany conquest.
The model specifies two mechanisms that drive tectonic currency shifts and a big residual. This means that the quantifiable probability of a currency crisis hinges on: 1) deposits to GDP and 2) public sector debt to GDP and 3) the Unquantified.
The Cast
It isn’t just a rouges gallery of prodigal sons under consideration (UK and USA excluded, because their stories aren’t over by a long shot). It’s an eclectic mix of times, places, Swedes, and Thais. And yes, everyone’s favorite sad sack—Argentina—shows up four freaking times. In broad brushstrokes, the case studies present three crisis profiles, although there is no doubt that a lot of intermixture is present in nearly all countries.
- Bank credit booms are common factors in 6 of the financial crises (Argentina ’95, Finland ’91, Japan ’97, Korea ’97, Philippines ’97, Sweden ’91)
- Bank insolvency and system-wide bank runs were the common factor in (Argentina ’81, Indonesia ’97, Korea ’97, Ukraine ’98)
- Unsustainable fiscal imbalances and current account problems were the cause of four very nasty currency (and sovereign debt) crises (Argentina ’89, Argentina ’02, Russia ’98, Thailand ‘97).
Bank credit booms end in bank credit busts that typically require serious debt repudiation and nationalization (maybe not in name) of the banking system. Bank insolvencies not remedied through capital injections or bank balance sheet repair end in a run on the country’s financial system. Repairing the balance sheets is not easy, and often associated with the residue of prior government direction of credit. The nastiest of all financial crises are the result of government failure to show fiscal restraint. More information can be found here and here.
The Goods
The whole idea of a currency crisis is a study in extremities: pure tail risk explanation. I explored these extremes using the database of Luc Laeven. Yes, I know predictive models are not a perfect fit for reality… the logistic model I used is just an objective way to organize available information free of emotional and a chunk of cognitive bias. I didn’t use all available data, as some of it is ill-conditioned; some is too complicated; and with some it just didn’t seem worthy of violating simplicity.
The story the data tells.
- “Creditor’s rights” from 1 to 4 (4 = best) is just subjective garbage and it shows. (Pr > χ2= .6882 sucks in every way)
- Current account doesn’t matter much in the model precisely because there are actually three distinct channels through which currency crisis are born. Korea, Japan, and others had no balance of payments problems but still had financial crises. (Pr > χ2 = .9174… even this sucks)
- Depositor insurance really has no value in this model at all. This is probably the result of mixed effects—simultaneously positive because depositor insurance fosters confidence in the financial system, negative moral hazard problems because the buyer doesn’t beware when she should. (Pr > χ2 = .9449… totally sucks…)
- Now we are getting somewhere: public sector debt/GDP. It is a clear signal of a government financial health, i.e., living within its means. (Pr > χ2= .1563… not utterly lousy)
- Deposits to GDP is quite interesting. As the ratio goes up, the probability of a currency crisis goes down. Governments (elected or autocratic) have strong incentive to protect the saved capital of its citizens, meaning its currency. The more deposits stored in the financial system, the stronger the state protection of the currency. (Pr > χ2 = .1322… not horrible for a logistic regression)
Hard Core Data Porn
The model fit wasn’t great. Even the most significant parameters indicate only a weak contribution to implied probability. Some combination of the variables and more sophisticated calibration could very well result in greater significance, but model risk and over-fitting are things to avoid. You can see the parameter results in Table 1.
The results can be visualized in Chart 1, which graphs the deposits-to-GDP-ratio to the estimated probability of a currency crisis. Countries with low deposit to GDP ratios uniformly show higher default probability. There is a clear logic in this: your elected and appointed officials don’t like, respect, or even give a shit about you. But they do fear for their jobs. Seems governments of all composition are somewhat careful to stop screwing around before you get real pissed. Ninety-nine percent of respondents are against raising the debt ceiling? Fed audits? Glass-Steagall coming back? We’ll see what the mid-terms heave up.
Stop Worrying and Love the Dollar: The Risks
With a deposit to GDP ratio in the United States 80% and rising, the probability of a currency crisis by government tinkering with the financial system has a likelihood fading like Lindsay Lohan’s career.
A more realistic channel is through explicit government failure to correct an unsustainable fiscal position, and as a result goes crash and burn like Russia, Thailand, Argentina (’89), and Argentina (’02). To me, this is a question of the central bank balance sheet, as they have been sustaining the current fiscal hubris.
The “balance sheet” risk of a dollar crisis reduces down Federal Reserve solvency. The chart below shows a theorized Fed balance sheet with insolvency condition at the bottom (hat tip: Willem Buiter). That steaming pile of MBS isn’t the Fed’s only risk.
So long as seignorage income exceeds the cost of business plus payments to the Treasury all is well. The problems are:
- Seignorage is limited when the central bank must repay TIPS, because they are CPI linked. If TIPS issuance becomes too large, recapitalization by the Treasury is the only way out of insolvency. The Fed becomes Citi, and the dollar gets really scared.
- Defaults on the (non-performing?) MBS the Fed acquired through direct purchases and unsecured lending to the private sector is the other concern. Problems arise when seignorage can’t generate sufficient income to cover the losses. Money printing does not always get a free ride.
These are non-trivial risks. But given that the Fed has been able to borrow billions of dollars at essentially 0%, and the MBS securities probably are generating at least some yield, I’m not losing any sleep yet. The greatest benefit of having the reserve currency of the world is that the United States issues exclusively dollar-denominated debt. Don’t screw it up by issuing a lot of TIPS, idiots.
The risk I most concerned with is that nature of the universe is unforgiving of mistakes. It is an unquantifiable risk: a powerful take-away of the model is its insufficiency. Quantitative exercises may be free of emotional bias, but they are not free of assumptions. And the big assumption spoken here is linearity.
Here’s hoping Benny, the squid, and Santa’s ‘lil hermaphrodite (Timmy Geithner) don’t base their lives on linearity just because it is tractable and easy. The diagram below shows why. The dashed blue line represents assumed linearity: the implication is that Fed can manipulate the dollar exchange rate however it wants by applying appropriate incremental interventions. If they screw it up, they’ll just intervene differently until the situation is reversed. However, if the world reacts to interventions in a non-linear way, then applying incremental interventions can result in sudden and irreversible shifts from reserve currency status to toilet paper (the red arrow). The world almost surely lies somewhere between these two regimes. But nobody knows the exact functional form of the world, so hedge accordingly.
AAA Super-Senior Nihilism? Come On, Guys…
It is a strange human perversity that bad times make some welcome complete annihilation as a transformative event. Perhaps it’s just a desire to escape mediocrity—a reset switch that puts everyone back to ground state. I guess such a reset seems so much easier than the pain-staking process of wealth-building and just plain dealing with the Latvian gambit front and center. It is not.
Are there risks in a long dollar position? Sure. But there are risks in eating smoked herring and choking to death. The real issue is the characterization of that risk, and the expected cost incurred if the event is realized.
But as far as the data suggests, we are not at the culmination of the Kali Age when the earth is wanting in tranquility, strong in anger, rising in power, and soon falling. It could have happened already. It’s not like the twentieth century wasn’t thoroughly awful what with concentration camps and gulags and the Cultural Revolution… I’m stopping now.
Cosmic carnage as a fine diversion! Pity that mundane reality sours the fantasia.
»
- 7964 reads
- Printer-friendly version
- Send to friend
Similar Articles You Might Enjoy:
- A Global Album Of Sovereign Insolvency
- Sean Corrigan Butchers The Chairman's Inversion Of Cause And Effect, Discusses The Fed's Brand New "Unbridled Imperial Arrogance"
- Buiter On “Unnecessary, Undesirable and Unlikely” Sovereign Defaults, And The IMF's Triumph Of Dogma Over Evidence And Logic
- Guest Post: Bull/Bear Weekly Recap
- Dylan Grice Discusses When To Take Profits On Gold: Hint - Not For A Long While
What happens to the reserve currency when its host has to recall its armies from around the globe?
...the armies will be recalled to quell the revolution in the streets when they realize the bankers, with fed complicity, have stolen the efforts of their lifes work.
A few well placed generals might possibly turn the armies on Wall Street and the fed, seize banks, gold and salvageable assets allowing the country to find a new starting point.
After that there ought to be a plan to put the nation back on track (and fast) - time would be better spent by the discussion forum figuring out this objective rather than "feel good" data trying to rationalize the sad situation that exists today. Lest we idly watch todays rationalization becom tomorrows One World Govt that ultimately devolves into One World Armageddon.
...sometime Satan,
come as a man of peace. (-Dylan)
There will be a total changeover in gov't before that happens.
The military leans much further Right than the rest of the population, and has this funny tradition of swearing an oath to the constitution vs. whatever OGO happens to be 'in power'.
The American military could'nt find their collective ASS with both hands...and their ass! Explain to me how 2 countries with no airforce, no navy, no sat/com., no tanks, no mortar, no standing armies, no drones, no smart bombs have managed to engage and defeat the military of a "superpower" for over eight years now? You get what you pay for--the spawn of the poor, inept and incapable of victory, led by inept and impotent leaders who prolong this shameful defeat to enrich the military industrial complex bleeding America to bankruptsy, ala the Soviet Union.
Hammer59,
You aced that, brah... the flag-waving wannabe-jarheads are your bitches now.
I have a boner now from an overdose of awesome.
Cheers
GT
Go ahead and stick that boner into some other bearded academic.
Wrong. The "failure" you're observing is the inanity of trying to fight a "moral war". We attack only "military targets" and avoid the deaths of "civilians".
This of course is historically absurd -- even for America -- whose greatest military successes have all rested on mass civilian casualties.
America could quell opposition in any of her military theaters quite quickly by adopting a policy of civilian retribution. (ie: A combatant's home town, family and neighbors will pay the ultimate price). While morally horrific, this is historically how wars are won -- and how cross-cultural power has been maintained. The Ottomans knew this. The British knew this (until the moral sea-change back home stayed their hand). And the Chinese know this today.
The question ultimately is one of identity: Do you want to be a military power? Because if you do, there is only one way to successfully project and maintain that power. Adhering to a moralist/humanist ideology will result in a failed and (as you pointed out) "inept" military. War is war, and in it's 'effective' form, it is both morally repugnant and absolutely defined.
Obviously you don't know jack shit about jack shit. The military was never meant to be an occupying force. The military breaks things, it doesn't build them. Statists desperately need such a force to institute their heaven-on-earth, though, resistance is not to be allowed, so the obvious choice was to try to remake the military into one. They failed but are unwilling to admit it, and it's not their kids who are dying and being maimed so who cares, right?
The constabularization of the military happened in parallel with the militarization of the police, or didn't you notice? Eventually, all of this force is meant to be turned inwards. It always is.
As for your comments about the MIC, I agree. But this next thing is completely uncalled-for:
You get what you pay for--the spawn of the poor, inept and incapable of victory,
Wear that attitude on your sleeve, please. I'm sure someone will have something just for you.
+1
The Western Powers That Be decided Americans would the world's warrior class. Our only export anymore is violence, so threatening and carrying out violence is our job. Winning wars not so much. The job of the warrior class is to protect the interests of the ruling class and the ruling class hires the best. We can imagine ourselves knights of the Realm. The reality is we're hired thugs.
We're not "winning" these wars because we're not SUPPOSED to win them. War is a jobs program. It's all we know how to do anymore; we don't MAKE anything but trouble. Afghanistan and the War on Drugs are about the cocaine and heroin trades, which finance covert ops and and keep our banking system solvent. Wars on everything else are about stealing resources. For this the west needs sentries.
In the end this is about more than oil and gas: This is about the US dollar hegemony during the down side of a FRB Ponzi. If there is peace our economy collapses. If there is peace our economy collapses. If there is war, the world may eventually decide its had enough and just dump the dollar en masse. The saber rattling and occupations are the middle ground.
How can people cannot plainly see this is beyond me.
The military was never meant to be an occupying force
Bullshit. History proves you wrong on this score. The military can't occupy only so long as it is prevented from occupying. Applying the lessons of Lord Cromer in Afghanistan and Iraq and grasping the nettle would quickly turn the situation there around....assuming our political leaders were capable of growing even one-half a pair as potent as that possessed by the typical Victorian Imperialist.
Yeah, because Victorian Imperialism was such a terrific long-term play by the English - remind me... how many Anglo-Afghan Wars were there? (The First - 1829-1832, was basically the beginning of the end for the British Army, who have not won a war by themselves since).
Every two-bit failing Empire has seem some strategic importance in trying to take and hold Afghanistan... and that's the reason it's referred to as 'graveyard of Empires'. But this time it's Yanks, so this time it's different...? Spare me.
Every idiot warmonger in history has used 'Gott Mit Uns" (or a variant) to justify their rapine, and American Exceptionalism is no different: ramping up the brutality (by putting on of the US's death-squad leaders in charge) won't do anything sensible.
Yanks think history started in 1789 and that nobody was abolishing slavery before Lincoln decided to use the idea as a propaganda ploy... as a result of historical ignorance and chauvinism, they have replicated the stupidity of Crassus in Mesopotamia, and of the British in Afghanistan.They didn't even learn from Vietnam, for fuck's sake.
It's not going well, and it will end worse.
Vae Victus... 'coz when the US falters there will be motherfuckers lining up round the block to get some payback.
GT
After that there ought to be a plan to put the nation back on track (and fast) - time would be better spent by the discussion forum figuring out this objective rather than "feel good" data trying to rationalize the sad situation that exists today.
I agree completely. First and foremost, we will need real capital, and the good will of the public. There are lots of people (here and elsewhere) who believe that the average American is a weak, weak-minded, American Idol-watching moron. They are wrong. There remains a core middle class with solid values, work ethic, and ...anger, born of betrayal. The good will of the public will be fleeting at first but can be solidified with revelations of truth and successful prosecutions of the current crop of conspirators (Wall Street, Congress, etc). The greatest danger of course is the rise of a charismatic strongman.
America's strength has always been its willingness to release the human spirit to build, create, innovate, and reap the rewards. That is the starting point IMO; that is where we must return to. We want high value-added industries and the jobs that go with them. Europe is still trapped in its rigid guild / class system and regulatory state socialism, and probably always will be.
Simplistic, I know.
Since 1913 96% devaluation....4 pennies not? Tyler, fuck the graphs
Well said Geopol---graphs looking forward-what a load of krap.
Detroit just announced 50% UE---looking good
Cinci just went up in flames -default
KC bonds downgraded
YRC just announced BK sold(bank repoed) HDqtrs in KC
38 million on food stamps (SNAP)
National Debt 12 trill 127 bill
Debt to GDP ratio 85%
Small business asset's collapse from 7.2 trill now 4.8 trill (just since May 2009)
Corp assets collpase from 17 trill now 13 trill-same time frame
State rev 1 trill 87 bill--state debt- 1 trill 52 bill
Local rev 1 trill 72 bill--local debt-- 1 trill 467 bill
California--lookin good
All Arizona/NM state reststops closed-have to make it to texas to piss.
It will take me a year to finish this list while the Almighty Great Dollar carries us all-what a joke--- O is what the dollar is worth.
Try it this way: 38 million on food stamps (Oh, SNAP!!)
Kudos for this post, especially Apoc for the fascinating post that nods my head (wags the dog? I cross my fingers Leo's position doesn't play out - and oh! how the contrarian can thrive!).
If it weren't for all the TV zombies in this nation we could oust the money changers - but I am not without my own faults.
That is something I have been kicking around...as a gold and moreso silver bug I keep coming back to this as a thought...
Add to it the fact that if anyone trying to call us on this stuff we say f--- u, grow your own food then....
Could it be that the country comes fill circle and reverts to its farming beginnings? So in the end we sell paper (money), technology (innovative tech) and food...
it is possible that my thoughts are more country related than dollar related which the dollar could still be screwed...
i dunno...
I see you're starting to catch on why we subsidize farmers so heavily.
The world has never seen the kind of fiat monetary system that we have been living under for the past 38 years, so any reference to history should be seen in that context. What is the most accurate way to guess the future? Use common sense. Would you keep lending to someone who spends with abandon, and is doing nothing to get their finances in order? Would you keep lending to someone who is giving you IOUs and telling you they'll only pay you back with more IOUs?
Eventually this charade ends... it will end with high interest rates, that we will have an extremely hard time paying off, without more money printing, or it ends with a collapse of the currency. Despite claims to the contrary, the world at large is already trillions of dollars long the dollar.
Drawing a meaningless chart on a graph doesn't moderate hard realities. Saying that people who call the dollar fiat bluff as having a "desire to escape mediocrity" is an ad hominem, that underscores the flaccidness of your argument.
Common sense looks at data. There are 60 nations including France and Germany with a much worse debt profile than the US.
I don't disagree with your assessment of the current US fiscal insanity. But the data suggests that it won't last. There will be a reaction to the actions of Ben, the squid, and the lil' hermaphodite long before we reach a currency crisis. The beginnings of this reaction you can see shaping up now.
What kind of reaction are you seeing JM?? Other than talk....
Well, talk is where it starts.
And I can easily see politicians notice the justified public outrage and act to exploit it to his advantage.
Note Glass-Steagall, Repubs don't vote for debt ceiling raise, opposition to Ben, etc.
Don't get me wrong. Politicians are all equally worthless in my sight. But there will be some that will do the sane thing if even for the wrong reasons.
We'll see if I'm wrong when the mid-term elections come around.
JM
I really hope you are right
My fear is that when things will really get bad for the general populace the temptation to use the printing press will be irresistible and then all bets are off.....Germans, Hungarians, Brazilians, Yugoslavians, Argentinians and Zimbabweans authorities knew very well what the consequences of the printing press were...still they did it anyway....
However my desire for a reset is not to escape mediocrity...I just don't think this is a system worth keeping (or maybe is damaged beyond repair in the long run)...I wish we could have sound money and a full reserve banking system....I know I'm dreaming....
Too late for Glass-Steagall -- that only helped when there was an economy -- there is NO economy.
Ben's done too much damage now --- pumping other's central banks to buy American treasuries only lasts so long.....
The mid-term elections are arbitrary. When the knives are unsheathed, the politics will no longer matter.
Comparing Sovereign debt levels of countrys is a absurdity in a world where private debt is socialised.
The overall debt level of both France and Germany is much lower then the USA - although TD illustrated the complexity of the subject and I may be missing something here.
Their debt profile is not worse the the US, they are only consistently more honest about their debt profile, and far more importantly, they have altered the financial regulations in a positive manner, while the USA continues its downward spiral of reg arbitrage!
And these other countries still have a semblance of an economy -- some of the actually still create, manufacture, produce and sell their stuff! Can't you comprehend that?
It will indeed last, as this is the only way to continue the Ponzi-tontine scheme. Witness the latest backdoor insurance (and pharmaceutical) industry bailouts ("Public Option").
Witness the cap-and-trade scam, with carbon derivatives from Blythe soon to be coming out the wazoo!
And the beat goes on.......
This is the truth.
Look who is Time man of the year... that should tell you something.
Debt to GDP is currently at 85%. We are number 11 on the list you linked too - assuming the ratios are unchanged in the other nations listed. Next year, debt to GDP could be 100%.
Not to mention, our GDP numbers are heavily over-estimated.
Your points, Stevm30, are both cogent and well thought out. (The poster, JM, following, is wrong on all counts.)
The post itself is waaaay off, as you have so intelligently pointed out. And a "socialist president"????? I'd call "Barry the Bankster" many things, but socialist is definitely not one of them -- unless he was referring to Michael Parenti's term for the American economy: a socialist plutocracy?
Historic models are rendered useless in the present, as useless as those godawful creations (Excel models???) from JPM et al., predicting the performance of subprime and ninja loans based on zero historic data (as they were a completely new category --- when the model doesn't fit the history, or the history doesn't fit the model --- ABANDON!).
Obvious predictions for what remains of the American economy (and during the past several years, when that financialization -- or great financial engineering bubble -- now exceeds 60 percent -- there is no real economy):
Unemployment will rise in 2010.
Unemployment will rise in 2011.
Unemployment will rise in 2012.
After that....it's anybody's guess!
Don't call logistic regression maximum likelihood estimates 'Excel models'.
Rising unemployment won't kill the dollar.
Currency without confidence. Entire mortgage market propped. Liberal accounting standards mask the depth of impairments. Term of debt shortening with celerity. Monetization ('nuf said). Deindustrialization. Expenditures especially military, interest, entitlements outstrip any ability to fund. Structural, irreparable deficit. Chronic unemployment. Guidotti-Greenspan rule fail. Finance consuming over 35% of GDP. Systemic fraud and cover-ups.
How far in denial can a terminal patient be?
All the happy talk and hopium and zippidee doodah in the world won't cure the ill.
Time to recognize the signs and heralds or suffer the consequence of ignorance.
Stop smoking that Golden Jackass. No, really though, it's good stuff. +1
Actually Willie (& Faber) agree with JM - to a point. The US will tread water longer than a number of other players. The fall will be as dominoes, and the paper WILL ALL go to shit against physical PMs. There will likely be a scrabbled together reset, but hard assets will never again be subsumed to the bullshit promises of the alchemists. This is the best case scenario, unfortunately.
Yes, and with the greatest entitlements going to the Oligarchy.
A little too much of mathematical masturbation in my opinion....along the reasoning "subrime mortgage can never go belly up in large numbers" or "Real Estate will always go up", etc...
One little observation....the US public debt ratio figure on the CIA web site is a 2008 est....pre-crisis.
Wikipedia report a list where US stand in 22th position at 60.8% GDP...and this was pre-crisis also...in front of Argentina (51%) and some other countries you mentioned which experienced currency crisis.
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
Japan is at 200% GDP and never blew up versus the other countries that did (very little external debt and with a trade surplus...so the investing public, correctly or not, assume that at the moment they can still service their enormous obligation)
There are so many variables in play that can lead to a currency crisis, and trying to model one mathematically is misleading IMHO.
Because the US Dollar is the world reserve currency, the investing public may reasonably expect more fiscal discipline than Argentina...doesn't necessarily means they are going to cut us more slack.
Your point is well taken about the accuracy of govvie debt ratios. I picked one, hopefully it's objective.
True debt ratios have gone up post-2008, but they've gone up for pretty much every country.
I don't know the debt ratios for every instance in Argentina, but the real bad one in 2002 their public debt level was 140% of GDP.
One of the key things I found was that the ratio of deposits to GDP is important, presumably because citizens demand capital protection (read: no dollar crash) at some point.
I thought I was clear that there are a lot of unknowns, and I don't dismiss different opinions on the subject. I even made a case for why to hedge the dollar.
There are strong reasons why a dollar collapse is not looming.
I bet one of the reason that is kepping us up is our reputation and let's not forget that at the end of the day the really backing of the dollar are our enormous military might...even if that is coming under scrutiny recently.
However in the Argentina 2001 crisis there is the peg to the dollar and the dollar denominated bonds (which they blew up) that played a role so the comparison is misleading.
Not sure what you mean. I don't compare Argentina to the US. I looked at a basket of fourteen economic basketcases to find meaning.
I meant that every crisis is different and it has its own peculiarities
Full agreement here. But there is some sense in which history rhymes, no?
I agree with all your points, saturno_v, and disagree with everything JM proclaims.
But most of all, having read through the IMF doc, it is quite simple minded, and far too simplistic.
I believe your are not including entitlements in your debt to gdp ratios...all that work and the calcs are wrong. Sad
Not so sad. Other countries hide their largesse as much as we do, if not moreso. That particular element may be skewed because of it, but at the end of the day the mechanism holds together.
Arguing that the dollar will remain strong because holders (who may be historical enemies) won't short it or move to dispose of its risk is akin to believing oneself a houseguest with all privileges because you are holding a gun to the temple of a favoured wife.
Fear and extortion do not a strong coalition make. And in this lull in dollar collapse, be assured that large holders of US currency are probing every means by which they can offload, hedge, and/or minimize their exposure.
This credit collapse event has not shaken confidence but irretrievably destroyed it. All the confidence currying is empty. Once bitten, twice shy. Many times bitten, and lately exsanguinated, done for good.
Not sure where you are getting fear and extortion out of what I'm saying.
Note that Treasuries spiked when CIT went bankrupt, and also when the Dubai shock came out at Thanksgiving. And gold got crushed.
Once bitten, twice shy... think you're right on the equities front.
There are too many discrepancies with everything you have said to take them apiece point by point, but suffice to say:
After the S&L crisis of the '80s, around one thousand executives went to jail.
So far, the perps have not only NOT GONE TO JAIL, they have been reappointed to the Obama Administration!
'Nuff said.....
Take 'em apart point by point. I dares ya.
I tried that with some of your earlier stuff and all I got for a response was "We'll see."
Do it. Much of what you've said in the past and on on this topic has been crazy-ass rant.
OOO, testy. If you'd like to support your contention (crazy-ass rant) with references, please enlighten us. If you'd like me to show where you've replied with "We'll see", here it is:
I responded to one of your articles (Japanification) with this: http://www.zerohedge.com/article/guest-post-japanification#comment-154758
You replied thus, offering only "hope" (hmmm, sounds familiar): http://www.zerohedge.com/article/guest-post-japanification#comment-154775
"My hope is that there is a happier ending to the fractured fairy tale.
It is possible if governments align their commitments to revenues. We'll just have to see if it happens."
In reply, I asked for more information:
"What measures can be put into place that would result in your hopeful outcome? I'd love to hear them. Whatever they are, from where will the political will emerge to implement them? I don't think they can be implemented until the system has already collapsed, and such a collapse reveals government and central banking to be incompetent frauds. Once the paradigm is broken, we are talking revolution not evolution."
You didn't reply. I am forced to believe your "analysis" is unsupportable.
So again, I "hopefully" ask for your hopeful plan. I asked one of your compatriots-in-words, and he hasn't yet responded either:
http://www.zerohedge.com/article/apocalypse-not-dollar#comment-167300
You want policy advice, bother someone else.
You want to present point by point contras to what I presented, I'm game to trash or agree with them.
lollercoaster; I apologize for "bothering" you by asking for details that apparently don't exist. An unsupported thesis is no thesis at all.
Do it. And Merry Christmas.
The Cast
None of these was a global power, had a far-flung empire to maintain, policed the globe, or hosted reserve currency. Their value as case studies is thus shockingly limited, yet they form the core of your analysis. You've done things like this often enough that I am forced to wonder about it.
Currency crises don't grow on trees. When they happened in the lats 25 years, I included them in the analysis, excepting the US and UK, because their story isn't over yet.
Don't like the size of universe? Talk to God, not me.
Funny how Russia had nukes and empire, Japan had a reserve currency, and there are developed european countries gallore in the mix, but you neglect any similarity because of mind closure or plummeting gold price.
Funny how Russia had nukes and empire
Nukes, but no empire, and certainly not reserve currency
Japan had a reserve currency
Huh?
Don't like the size of universe? Talk to God, not me.
You selected the universe for your evaluation, not me. Was your choice based on finding the results you wanted to show in the first place?
developed european countries gallore in the mix,
Not relevant, for the reasons I stated above.
but you neglect any similarity because of mind closure or plummeting gold price.
I neglect your similarity because there is none. All I continue to ask for is simple, if you can provide it: tell me what policies will allow the U.S. to grow its way out of debt. This is the only way your strong-dollar thesis means anything at all. Or, tell me where the capital is going to come from for ever-increasing deficits, or even just constant deficits at the current levels. You can't, can you?
The “balance sheet” risk of a dollar crisis reduces down Federal Reserve solvency.
This is the keystone of your argument, and it amounts to "as long as the Fed can get away with printing money, it remains solvent, and there is no dollar crisis". Yet you fail to see that the outcome is contained in the precondition. Radical dollar bugs universally assert this: As long as we can issue debt denominated in dollars, we are solvent, because we can print our way out. This was demonstrated by QE, right? As more and more nations form coalitions to abandon the dollar, does the assertion hold? Is it still valid when we are the only ones willing to buy our debt, even if we charge ourselves zero percent interest forever?
As I said to many less tone-deaf posters, I don't agree with current Fed policy or fiscal policy. The data suggests that high deposits to GDP means people protect their capital through political means at some point.
Coalitions to abandon the dollar... if you're talking about the gulf countries. It's nine years off if it ever happens. I'm not dealing with nine years off, as noted on other posts.
Confidence is the hallmark of a reserve currency. Long term, that is gone, never to return.
http://www.zerohedge.com/article/putin-prepared-avoid-dollar-chinese-com...
http://www.atimes.com/atimes/China_Business/KF18Cb04.html
Yes but what can they do? Social unrest in China seems to me much more unpalatable than a few billion $ losses.
No?
In the end, a very slow (5-10 years) transition to a basket of currency (including gold) from USD seems the best solution for everybody. Occam's razor suggest that's what will happen, so I buy some Au and Ag. People argue that the present fiat system is to blame, but to me it actually gives the US the flexibility to make this transition in an orderly manner, understanding that the ride won't always be smooth sailing. I just can't see a major sudden shift away from USD as credible. I live in Canada. It seems to me that US citizens don't quite grasp the magnitude of influence the US economy/culture/military has all over the world.
"even in spite of massive (but not unprecedented) fiscal and monetary craziness"
we've never had a fed doing this, we've never had this much debt and this little to show for it, we've never been this corrupt
"As old as history itself is the truth that the last ones standing claim the spoils of victory"
why can't we all fail? we've never had peak oil and have never planned so poorly
Geopol's right. I can't make love to these graphs
In WWII you saw multi-year QE that made today's shit look like nothing. Seriously.
Again, not saying I approve of the what is going on. The data suggests it won't last, because people that hold dollar savings won't stand for it at some point. I don't know the exact point.
The world will feel its share of misery and pain as a result of the hubris. But that doesn't mean every damn thing fall apart. The data suggests that the dollar among other currencies will not fall apart. It may.
You right.
In war you go for broke because you hope to win...at the end of WWII we were the only guy standing so debt was not that problematic...and we owed to ourselves...what was the external debt back then??
And we had the factories which produced goods.....fortunes have been made in reconverting them to civilian production.
Battleships not bankers. And the end of WWII saw the USA as a creditor to European nations passing over the baton. Besides which, virtually the entire productive capacity of Europe was in ruins. The USA was supplier and manufacturer to the world.
Low entitlements, oil surplus, current account surplus, gold standard, work and savings ethic.
Gone now. Good luck. Simply too many pigs not enough teats.
that's what I meant by so little to show for it. What do we have? who have we saved? We thought they would give us back ownership of the oil. We're idiots. They're not. Why didn't we spend the same time, money and lives building energy systems. We screwed up
There's no "we" in the equation. You and I and the rest of the citisenry has been completely left out. "They" screwed up and it has nothing to do with "we".
Somewhere around 6-10$ a gallon gas.
Even Wal-Mart's model for profitability breaks down then.
Average in Europe is 6 Euro a gallon from quite some time now....nit much happened.
look at the size of their trains, cars, and countries
But you go to war to get the capital of another country so if you win the debt incurred is paid back with interest - this 21st century debt is taken on and what do you get - unproductive housing units , useless consumer trash and a giant oilfield that you cannot invest in because it is too unstable
The debt to GDP is rising because there is no return on the investment.
If your take home from what I wrote is that everything is going to be fine, then you've missed my points. The US consumer is done. That will make the world very, very sick for years.
That I think the dollar won't utterly collapse and even appreciate is going up is very bearish for just about everything else.
It will collapse if you keep leaving those monetarist junkies do what they always do - throw paper at everything in the hope that some of it will work , that shit only happens when crude is coming out of our ears and those days are so over.
"In WWII you saw multi-year QE that made today's shit look like nothing. Seriously."
Completely different measurements today. Invalid argument!
We are nothing, NOTHING, even resembling the USA of WWII.
We are a dry-rotted, crumbling husk of a long ago productive country.
In truth the Federal Reserve is a representation of the USA. It is the ultimate shock absorber. When the equivalent of a global bank run occurs and the many trading exchanges experience sudden overwhelming sell orders, the Fed step up.
It provides the illusion of stability through its ability to print ANY amount of reserve currency to quell and instanteous threat.
Its purpose is then to absorb all the fraud, panic, junk, corruption and repackage it in order that it can be re-released over an extended time period.
Financial panics are short-time events but the ability to fabricate and counterfeit enough confidence and reserves may serve to quell the issue. Insolvency is another issue though.
The question one must ask is, "Have the fiscal and monetary actions of the Fed and Treasury been sufficient to allow ENOUGH time to pass that the impaired financial institutions may be healed via inflation and value stripping of the populace?"
Has transferring private debt obligations to the public balance sheet conferred enough "gravitas" to the equation that investors fear less, and trust more? Or has the transfer of "imminent collapse" just a temporary veiling trick?
In truth the Federal Reserve is a representation of the USA. It is the ultimate shock absorber.
No, It's the ultimate pothole
The Fed creates shocks to increase the transfer of wealth. Never waste a crisis.
Not attacking you per se. But this stripe of thought is exactly why I spoke about nihilism and the need to move beyond it.
What point is there to saying the US sucks irreparably? It doesn't. Are things bad? Yup. But the sun is going to come up tomorrow, just like it always has.
We are not a rotted husk. We just make different things. Computers, chips, med tech, robotics, etc.
We should use what limited power we have to ensure the idiots we don't kill the goose that lays golden eggs.
If not for you and me, for my kids and your kids... for Santa.
"We just make different things. Computers, chips, med tech, robotics, etc."
We do?
As Rick Santelli told Steve Liesman yesterday, hundreds of billions don't seem like much until someone's got to actually pay it.
On my horizon that point is years away, not months or days.
You've been drinking that Liesman cool-aid. See the other post on the "Gulfo." Funny how quickly "nine years" to replace the dollar becomes "next year" . . .
Liesman !?! F-u-c-k...
I don't think the world is rosy, dude.
Merry Christmas.
Merry Christmas
Low blow Mande. jm reads nothing like a fucking Liesman.
All the trillions and trillions are following the billions and billions into what?...
New factories, new research and development, new innovative technology, new production with positive cash flow, or even payoffs of interest AND principal?
No, dumping $$ into holes newly discovered and soon to be discovered. Deficits as far as the eye can see. Throwing money to quell an accelerating tailspin until we get enough of a temporary uptick to call and end to a recession.
But that downdraft will resume, it is unquenchable and the trifling activity which produces a countersurge is consumed and overwhelmed in the blink of an eye.
This is an extraordinary event outside of traditional central bank curing tools. It is a fatal event.
Despite the comical, redundant comma (of which I have grown fond), being so concise and precise is admirable - 'above my paygrade'.
,,,, - have I seen you elsewhere in cyberspace?
I thank my critic yelling across the pool from the shallow end. With his googles and flippers.
Change the avatar to "needs swim camp" maybe?
Woah, that was pretty good. All kinds of metaphors. No, amazingly my detached comment ended way down here, in the shallow end. Bwah-ha-ha!
I hit the wrong reply and misdirected the comment - drinking too much - pool water.
While everybody concetrate on debt /GDP ratio,I would like to see a TAX REVENUE/PUBLIC DEBT ratio. GDP numbers could be screwd up. This would resemble more a cash flow statement for corporation,that will give you an estimate on how much more the corporation can survive and service its debt before it goes belly up. Basically a ratio of real numbers as a percentage of real numbers. What is the use of gdp numbers that are inflated becuse of debt,and could go down because of debt?
Good point. If you have a link to that kind of data I'd like to review it.
Do you think the findings would change a lot looking at 'top-line' revenues?
I kinda thought seignorage was the bigger deal.
Wow ... It looks like the DX play is a real emotional one!
Seems so Bear.
There will be always be pressure on the American system as long as Americans are paid a minimum of $7.25 an hour while workers in its counterweight China make less than that per day . . .
FAIL, FAIL, and more FAIL. I'm greatly disappointed by the quality of guest posts. I take it the real staff is off for "the holiday"?
Maybe you can help improving it right??.....what kind of "quality" do you want??
articles that aren't some grad student's dissertation
Been out of school for a while now. Finance has given me quite a career and I've seen my share of the world.
Agreed. What an ironic post.
Apocalypse? In late October I wrote that "the mighty greenback will come roaring back, perhaps sooner than you think." People have to stop looking backwards. Fundamentals are improving, the US dollar will appreciate and US tourism to Greece will boom next summer. Party on:
Dibs on the pink bikini. Juuuuuuust enough Ouzo. But seriously someone needs to kick all the guys of the stage.
Does the color of the bikini really matter:
I bet they are all from Argentina, spennin' daddy's money - they've seen this before: 'enjoy it while you can'.
Rawr. Yo amo Buenos Aires.
Dont hate me for sayin', but I picked the pink one out of probability of repeat visits: slightly chunky = luv, luv, luv
What the hell, it's freezing in Montreal. Here is some more eye candy:
That's a remix of Seven Nations Army...
Ironic
I think I just glimpsed hell. Seriously. That, or it's a Kolivakis Family Renaissance Weekend. i thought I'd see more solar panels, though.
As you can see, your hell is others' paradise...or Super Paradise to be precise.
You can have your zombiefied techno trance and 10:1 guy/girl ratio. The Kolivakis filth gear hits overdrive.
The last time I partied at Super Paradise Mykonos was over 15 years ago. Back then, you still had the guys in a pack chasing ladies but the ratios were not like they are now. While it was still crazy, it was much cozier and the music was way better.
Women's Lib! They're in college instead of Greece. They are now the contrarians, it seems. Although it's mostly healthcare and education, they are still hanging up a paycheck in the apartment while the boyfriend checks the Want Ads.
Wait- they're still in Greece, it's just that the chastity belt is tougher to crack. Which isn't a bad thing, but American males have to realize that license plate factories are being built overseas now.
Wow. Looks like y'all really have your pulse on 'middle class america'. Keep on working your 3-monitor terminals in the city, the rest of us will re-found this country while you bitch and alternately go globe-trotting.
I am chumbawombat
If only we could export public school teachers and HMO paperwork pushers - then we would be ready for a reset to the primacy of the Constitution.
To paraphrase Descartes, "why chance it?" N. Krone overlay. http://blogs.reuters.com/rolfe-winkler/2009/12/15/the-norway-trade/
Nick Gogerty
The sad thing is the the Austrians have been right all along and have a perfect logical explanation of the reasons why we are in this situation and they predicted all the time in every crisis.
Still they are not considered mainstream...some sort of weirdo pseudoeconomists.
Meanwhile we keep listening to the real kooks (Keynesians and Monetarists)
Austrian Economics, the only "non-magic beans based" economics.
too bad austria didn't stick to austrian economics
What is also sad is that most Austrian economics bandwagon followers choose to behave like a rat in a corner, even when not cornered.
Always sweating while watching the world evolve and get more and more complicated. Shouting for the singular moment that reduces the world back into austrian simplicity...
The world could have learned from austrian economics, had it not chosen to live in the 1890's. Ah well, watch your easily-discernible basic principles get swallowed up.
Good luck y'all, the world does still need you, my stepmom still buys antiques.
As long as they have a printing press it doesn't matter what economic model is followed - it will always collapse and the apologist economists will say the printing press could have saved us if it just had more freedom to print and seize competitors.
The issue isn't whether it collapses against other paper. It's whether it collapses against gold. Which it will, in time.
"whose debt acts as the world financial system’s risk-free collateral" (emphasis mine)... that sort of faldferol might pass muster in US universities, but in the developed world Markowitz is only a pedagogic tool... there IS NO 'risk free asset'.
You can claim that inflation eats into the returns on to all asset classes equally, but it eats, and it is unknown at t=0.
You can claim that the coupon per unit of face value is known at t=0, and that the face value is nown at t=T, but the purchasing power of both the coupon and the face value are NOT known at t=0. (Particularly true if the investment begins its life in some other currency, ja?)
The sooner American institutions set aside the STUPID 2-asset model the better, since it seems that American students are like Pavlov's dogs: they get given a tool (be it Markowitz's CAPM, or the EMH, or Black-Scholes) which us useful because it's tractable... and then they go around thinking it's an actual description that can be used 'out of the box'.
Doing regressions on variables of different orders of integration is so dumb it burns my hands just typing the words; there is no evidence whatsoever that any of the regressed quantities are I(0).
And lastly - the key to a currency crisis ought properly to include EXPECTATIONS of FUTURE public-sector borrowing (or a proxy for those expectations)... say, the fact that the US government has made about 90 TRILLION of future promises might be in there, as might the rising NPSBR-to-GDP. (And I am completely ignoring the statistical chicanery of hedonics and so forth in the GDP numbers: this chicanery is much more common amongst first-world countries)
You might also think about growth in the money stock too... otherwise you might come to the wrong conclusion regarding the source of Weimar Germany, Zimbabwe and Argentina's crises... y'know, the BIG ones.
Does the CIA factbook include state and local debts? Are the numbers even remotely comparable across countries? The CIA's track record on data gathering being what it is, I would not use their estimate of the letter 'a'. (After all ,they failed to predict every major global issue since their inception... it's hard to do that bad a job except on purpose)
Look, I know this is only 'quasi-scholarship' - like most Climate 'Science' - but the methodological holes are so large that it really should not be allowed to go unmentioned. The interwebs has enough trouble being taken seriously without devoting even nanoscopic segments of itself to stuff that can be shot to shreds like a brown child in the face of America's Heroes™.
Cheerio
GT
GT's Market Rant
!?!
Now thats an article--thanks for clearing things up GT
Please clear up how he got bond values out of anything I said.
Meant that post as a polite form of sarcasm--Got too hand it to ya JM you got balls of steel maybe not knowing you would rile a whole lot of dander--have enjoyed this evenings shootout at the OK corral and may the best side win.
I have to "stress-test" how to communicate these things to a sceptical audience. This is a good way to do it gauge sentiment. Most people won't say exactly what they think.
This forum makes people bold.
I really am just after the truth of things, just like everybody else here. The technical stuff is just there to show I did my due dil. and one can verify what I say to an extent.
the key to a currency crisis ought properly to include EXPECTATIONS of FUTURE public-sector borrowing (or a proxy for those expectations)... say, the fact that the US government has made about 90 TRILLION of future promises might be in there, as might the rising NPSBR-to-GDP. (And I am completely ignoring the statistical chicanery of hedonics and so forth in the GDP numbers: this chicanery is much more common amongst first-world countries)
This is an incredibly important point that is always "overlooked" by the radical dollar bugs. And, the "chicanery" you speak of is IMO pure hubris; they think they can get away with it forever, or at least for long enough to turn it over to the next guy.
In WWII you saw multi-year QE that made today's shit look like nothing. Seriously.
I never get this line of argument...as the US was the only industrial country to emerge out of the carnage of WW II unscathed in industrially and agriculturally...no country in history, including Rome, ever had such an incredible advantage.That was then, this is now.
Bismarck said that God so arranged matters so that fortune favors children, fools, and the United States of America.Not any longer.
The one thing that makes this plausible is the fact that all of the central banks are $20 whores, but whereas the other currencies are suffering from terminal AIDS and genital herpes, the USA (so far) is just suffering from run of the mill STD's and crab lice. They've all got a disease but when it comes time to pick a dance partner everyone will still run for the US dollar when times get tougher elsewhere.
Good analogy, doc!
After everyone runs into dollars, what then? What happens next? Please keep this theory going, and tell me how it resolves our situation. Does it lead to the higher productivity that would enable us to pay off debt? Does it reduce unemployment? What would the mechanism for that be, exactly? Do tax revenues rise? Does it solve the demographic problem facing the U.S. and the developed nations in general?
Please, tell us all about it. I'm dying to hear. This one-dimensional thinking is killing me.
Thanks for the bikini girls. Totally lost my train of thought.
Agree that the weaker players will blow up first--everything for bad loans to insolvent countries. The dollar benefits during the mine field of bad debt going bust.
If the dollar strengthens gold may go down, but lately not so much. Gold being a more stable asset.
There continues to be concern that the Euro, the chief rival for reserve status, is in danger of disintegrating as the weaker Euro-zone countries and the mega-banks in the Euro-zone approach the brink of insolvency.
So that'll be good for the dollar for a while. Over the longer term, we're looking Japanish without the exports or the savings (not good).
Deflation? I'm not seeing it. I went to the grocery store, a discount grocery store, and everything is 10% higher than it was just a few months ago. Gas is still around $2.50. Utility bills going up not down. Property taxes going up not down. The only things that are cheaper are electronics and houses, but how many houses can one buy, lol?
I wouldn't underestimate Bernanke. He's Slime Magazines Person of the Year. And he's brilliant. I wouldn't misunderestimate him. However, the Politicians are spending us into a level of debt that will soon be unserviceable. We're living off 0% APR. For now.
Yeah. I'm looking at a short horizon here, and it takes years or decades for things to level off. And I won't even try to time things because my shtick is data.
I am not optimistic that things will return to the way they were. But I don't see the dollar exiting left anytime soon. Some of the data I present gives hope for sanity to prevail.
As for deflation... I can offer some anecdotal stuff. I bought a $2,400 mattress for $900, and my wife a laptop for $400. I think anyone will admit that there is inflation in some goods. The opposite in others.
Thanks for the very informative article.
What most here seem to not understand is all currency is relative.
I will be way long dollars (USD/JPY...) in February when this all comes tumbling down...again.
More shenanigans. Yen over 90 again as USD +0.44 to 77.438 since 8PM. It's so ridiculous, gold is just sitting there staring in disbelief.
The dollar aint going up, the euro is going down. And gold is doing fine against the euro.
As someone that has made a living modeling data for predictive events for 25 years it was very amusing to read this post. I'm not saying the conclusion is incorrect and I can't say when the dollar will crash, but then again neither can anyone using "models" like these.
Economies and currencies are such basic little systems they really lend themselves to assumption-filled, over-simplified, quasi-statistical analysis.
Keep qualitative analysis qualitative, throwing numbers at things doesn't necessarily make them subject to meaningful statistical analysis.
I do the same. I'm trying to keep it simple but verifiable. There's no point in putting 50 oages of stats out there and talking about calibration on a post like this. Too boring. What I reported and the presentation of it is a judgement call just like everything human.
Instead of being precisely the type of quant that gives us all a bad name and ends up a bitter slave in dept. model validation, why not be specific so I can respond constructively.
I was very clear about the limitations of the model and the worst case.
JM, I appreciate your effort and also your willingness to respond to comments. I just don't see that a statistical analysis is going to predict where a currency is going, particularly when you only have 25 years of data (not even far enough back to include the '81-'82 and '73-'74 U.S. recessions), your public debt data doesn't include the present value of future entitlements and you don't include data on municipal debt or private debt. It's easy to point to federal debt as roughly 60% of GDP and say that is a middle of the pack number among other countries. But how about federal debt plus municipal debt plus the present value of entitlements at $60-$70 trillion, in the neighborhood of 400% of GDP? Or U.S. total debt (federal + municipal + private) at roughly 350% of GDP? Those would seem to me to be better barometers of the U.S. debt problem but I don't think there is good comparable data of those measures for many other countries.
It looks to me like your analysis is driven more by what data is available to run through a regression model than by a well established hypothesis about what data should predict the direction of the dollar or any other currency.
You are right in that I am not trying to forecast or predictions here. That really is too complex an effort to not get paid for.
I am trying to highlight a mechanism or logic of data relationships, and then make my stab at the intuition behind them. People can disagree with my intuition and I'm happy to see the different opinions.
My data is limited, true. The IMF does actually pay people to glean and collect data, which seemed to me a reasonable place to start. It is hard to come by when looking at such a small universe of extreme events, because they aren't consistent across long time scales ('74, '82). Like GNP becoming GDP. I wanted to look at UK in '71 when they got IMF bailout, which you may agree is the most relevant lab, but couldn't arrive at consistent time series to use.
Agreed it is optimal that wider representations of debt would be better. But I couldn't even get consistency in public debt figures.
The debt issue is in my view an important issue whose implications are best dealt with independently. I tried to stay focussed on currency crises and how they work.
thanks pm
I thought it was a useful and informative exercise.
Being a dollar bear I cannot deny that figuring out the timing of a collapse is extremely important and this does make a decent case that we should see some of the worse off economies crash before ours.
Not sure why people get so mad about this...your clearly not being a Leisman.
sheez, you guys at zerohedge are such drama queens. the dollar is oversold, get over it and make some money. why is it so hard.
JM did you use the official debt numbers or the GAAP adjusted debt numbers? The ones that place the US debt load at closer to 60 trillion with unfunded liabilities? It's the unfunded liabilities which will kill us and force a devaluation of the dollar. Well that or the Fed Gov has to massively reduce spending. That happy event will only happen after a currency crisis or after I slip back into the real world instead of living in the Twilight Zone.
Hope your right the dollar doesn't collapse but how will we know when we go off that faith cliff? After all you even pointed out the fed is printing free money to buy MBS that are probably paying. Though I wonder how many since they are referred to as toxic waste and we saw the market on them try to move after the FOMC statement today. Also have to remember that the Fed numbers are what they want to tell us, so do you trust the Fed's numbers as presented?
For the countries in the model, I used IMF estimates for all data. The ranking link that puts the US at 61st comes from the CIA factbook, which one poster thought questionable.
If there isn't reform, yes. It is clear that the status quo is unsustainable, and so it will change. The deposits to GDP ratio link to currency crises has something to say about this.
A real-world example. If I took money out of your bank account or your check, you would be pissed, no? Or when you saw inflation take gasoline to $5 a gallon you got pissed, right?
Nobody better screw with the money. As people realize that is exactly what Ben and their elected losers have been doing, they will go the way of all dirty diapers. If they don't, who is there to blame?
I don't trust the Fed. No one should. The only reason I put all the data up is so that the trust threshold is lowered in the case of this post.
Right but there will not be reform. Touching those benefits and actually cutting spending is like politely asking a crack head to just go cold turkey and not monitoring him. He'll keep smoking away on that crack pipe. Neither party has any inclination to bring spending under control, for the Red team look at the Bush years and the massive surge in gov spending, for the Blues look at the massive increase over the massive Bush increase. Instead of cutting spending they are engaged in a game of "Top This Fiscal Irresponsibility".
Will people be pissed, your damn right! But when both parties are spending like drunken sailors and you only have the two choices what do you do? So we will toss out the Blue team for the red team again, after after their turn at plunder the Blue team? We need real change in this country and the system is not geared to help that, it's actually geared to retard any change from the grassroots.
Voters can keep tossing them out until they do what they want. It is surprising how effective that fear can be.
A complication is the number of people benefitting from gov redistribution may get in the way of change because they vote them in. This, too could happen. The data from other countries doesn't show this as a strong possibility as long as people save money in the financial system.
And let's not forget that while the media is still trumpeting the death of the dollar, the Euro is silently falling to pieces in the shadows...
This isn't over by a longshot.
A rating agency took a poke at Greece, again. Dollar up, everything else down. At least this morning. So the counter-trend dollar rally continues regardless of Washington. Why do I feel its 1933 and FDR is President?
If the Senate screws with Bernankes confirmation watch all hell break loose in the stock, credit, and currency markets.
In Minneapolis Hennepin County Medical Center accepts all the uninsured walk-ins in the area. Their budget of 40 million was just cut by the state as we face a 1.3 billion shortfall for the currently ending bi.... and 5 billion shortfall for the next 2 year budget cycle.
Eventually, hospitals will turn away these people. They will be sick in the streets. Eventually medicare won't be able to spend $200,000 on every sick 80 year old that rolls in the door. They will die at home in their loving families arms.
Eventually people will just simply not have heath insurance in increasing numbers. "It's worth the risk" they will say.
Get ready, it's coming and it's not that far away.
The USD rally I forecast several months ago has developed into a good uptrend on the daily chart.
The rally may last years.
Plenty of good FX trends ...
http://www.zerohedge.com/forum/market-outlook-0
From your intro to this article:
"a populist legislature"?
What population do either Dems or Reps represent? Not the American population, certainly. You've proven that time and again through your reporting here.
"a socialist president"?
Which recent prez wasn't willing to spend more than he had on socialist programs?
Agreed.