Marc Faber is now using the phrase "total collapse". A commenter on this post says he's joking, because he's smiling, but I don't think the commenter understands European schadenfreude. The Dance of Death illustration on Dr Faber's website should warn you that he is in a very long tradition that sees death and disaster as the spice of our transitory existence.
Faber lives in Chiang Mai, northern Thailand, a country whose King is a proponent of national economic self-sufficiency. It's also worth noting that Chiang Mai is a fairly short air-hop from Burma, Laos and China; and that Dr Faber collects Mao memorabilia and has business interests in Vietnam. I see him as a long-term planner who covers all possible options.
As Dr Doom notes, "...a major crisis like we had should clean the system but nothing has been cleaned," so why should all be well again? But you could choose to side with Faber's co-interviewee Giles Keating of Credit Suisse; very nice accent, nice bearing - just the sort of thing the clients like.
However, witness also Karl Denninger today, commenting on a report that US Federal Government support for the economy could reach almost $24 trillion:
A couple of market technicians have noted certain "patterns" in the market that have potential downside targets of zero. That sort of thing normally results in a loud guffaw from me - even though I'm bearish I'm not that bearish - I couldn't imagine anything short of global thermonuclear war, ala "Joshua", that could lead to such an outcome.
Well I think I just found something purely economic that could lead to that outcome, and it's right here.
Be prepared. As the Greek saying goes, "There is no borrowing a sword in time of war." I'm going to go back to doing what I started to do a few months ago: draw extra cash and stash it in a locker. And some other things (though not weapons - the tiger is the endangered species, not the rabbit).
Monday, July 20, 2009
House prices to sink further
Barry Ritholtz gives his reasons why house prices will continue to drop - 15% to the mean, probably more - say 20%? (htp: Michael Panzner)
But the market is segmented. Maybe it'd be more useful to discuss the projected impact on different regions and price brackets.
But the market is segmented. Maybe it'd be more useful to discuss the projected impact on different regions and price brackets.
Sunday, July 19, 2009
Step by step - how the dollar is recycled via China
A propos China and monetary inflation, please see two very useful and enlightening articles by The Contrarian Investor - this explaining why the money supply is growing there, and this detailing the steps by which money from the US goes on a round trip to China and back.
Lost in fantasy
Following up my Parthian shot about Waldsiedlung in the previous post, I looked up Erich Honecker and discovered that one of his slogans in the 80s was "Vorwärts immer, rückwärts nimmer" ("Always forwards, never backwards").Perhaps you remember Tony Blair's "Forward not back" in 2005? Or his "the People's Princess" (I thought I heard his throat tightening in a desperate attempt to stop the awful phrase coming out - Diana was an Earl's daughter - but maybe it was only a stage sob). And how about "In the years to come, wherever I am, whatever I do, I'm with you", weirdly echoing Matthew 28.
A schlock PM, turning eclectic sources into a mishmosh of gibberish less meaningful than Queen's Bohemian Fantasy, for the sake of a momentary, meretricious glamour. An extension of the "Spacematic DISCO with LIGHTS!!" of his Oxford student days.
Did he ever understand what he was playing with?
Locking the doors
The dethroning of the US dollar as the international trading currency is under way. New bonds issued by the International Monetary Fund in the form of "Special Drawing Rights" are related to a basket of currencies, thus diluting the dollar element and reducing America's opportunity to cheat the world by devaluation.
The same article describes a Chinese proposal to start issuing bonds denominated in renminbi, so that if the dollar does drop against the Chinese currency, all that will happen is that the dollar cost of the capital debt will increase.
It occurs to me that such extra security for lenders may help interest rates to remain lower than they otherwise would be. So the threat to borrowers is not that interest rates will increase, but that debt outstanding will continue to feel heavy, since inflation won't lighten the burden. In fact, the burden of foreign debt could get worse, if the dollar weakens in this new foreign-currency-mortgage era.
Another factor, which may be a deliberate strategy with an eye to the above, is China's own expansion of credit. If monetary inflation goes global - including in the East - then there's less hope that Western businesses could use relative currency devaluation to increase the demand for their goods and services. Manufacturers here will still be unable to compete and debt will grow. Our creditors will own us - we'll "owe our soul to the company store".
It's time to grasp the nettle - bust the banks who got us into this, have a tremendous clearout of debt from the system, reset wages and prices at lower (more internationally competitive) levels, get the people back to work and shrink the dead weight of government and its dependants.
That, or see what's left of our wealth leak away, and then suffer all the above as well - at even lower levels of per capita assets and income.
Doubtless the politically-favoured option is the latter - "Let it all happen on someone else's watch, after we've made ourselves into the New European Aristocracy and gone to our country estates." This would be a mistake. The palace of Versailles didn't protect Louis XVI, nor Waldsiedlung the East German communist elite.
The same article describes a Chinese proposal to start issuing bonds denominated in renminbi, so that if the dollar does drop against the Chinese currency, all that will happen is that the dollar cost of the capital debt will increase.
It occurs to me that such extra security for lenders may help interest rates to remain lower than they otherwise would be. So the threat to borrowers is not that interest rates will increase, but that debt outstanding will continue to feel heavy, since inflation won't lighten the burden. In fact, the burden of foreign debt could get worse, if the dollar weakens in this new foreign-currency-mortgage era.
Another factor, which may be a deliberate strategy with an eye to the above, is China's own expansion of credit. If monetary inflation goes global - including in the East - then there's less hope that Western businesses could use relative currency devaluation to increase the demand for their goods and services. Manufacturers here will still be unable to compete and debt will grow. Our creditors will own us - we'll "owe our soul to the company store".
It's time to grasp the nettle - bust the banks who got us into this, have a tremendous clearout of debt from the system, reset wages and prices at lower (more internationally competitive) levels, get the people back to work and shrink the dead weight of government and its dependants.
That, or see what's left of our wealth leak away, and then suffer all the above as well - at even lower levels of per capita assets and income.
Doubtless the politically-favoured option is the latter - "Let it all happen on someone else's watch, after we've made ourselves into the New European Aristocracy and gone to our country estates." This would be a mistake. The palace of Versailles didn't protect Louis XVI, nor Waldsiedlung the East German communist elite.
Belling the cat
Karl Denninger calls again for the fat cats to "eat their own cooking", i.e. accept responsibility for the ruinous debt that will otherwise put a brake on the American economy for a decade. Good luck with that. Now, who's going to make them do it?This is a test, not of the economy but of democracy.
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