Minyan Mailbag - Economic Optimism?
Figured as much!
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
First of all, I want to tell you how much I love reading your stuff. You have keen insight and an ability to see things that many, (most), others overlook.
That being said, assuming you are right and the Chinese continue to buy stuff instead of hoarding dollars, the great unraveling may be on our doorstep. Could you think through a couple of optimistic scenarios where the dollar falls substantially further, the U.S. imports some inflation and thus also gives domestic companies pricing power, all within a rising interest rate environment?
(I know it's hard to follow, but it IS a question.)
Thanks in advance,
Minyan Jeff Wachtman
P.S. Greenspan said that housing prices were NOT going to fall nationally. Now he "could" be unable to prevent it, but I think it is a statement of how much resolve he has to use whatever is at his disposal to avoid a deflationary outcome. 747's & dollars?
I asked Mr. Practical at lunch a few weeks ago if he thought there was any way out of our current situation (not talking about geo-political risks, just economic risks). He bluntly told me no, he didn't think there was any way out. Mr. Practical is of the Austrian economic persuasion, that is, any economic boom induced primarily through an uncontrolled expansion of the money supply (one that ignores any relationship of the money stock to the velocity of money) eventually must bust. This occurs because the stimulus is introduced into the economy through debt, not an increase in the velocity of money. Eventually the debt burden becomes untenable and a debt correction ensues.
Mr. Practical jokingly suggested that his new idea of "diversification" is having his gold buried in several different places. Upon reflection I am not so certain that he wasn't serious.
To answer your question, however, I can envision a relatively long period of time where this coordinated global monetary expansion can continue. This can occur only if interest rates do not rise and our foreign partners continue to buy our debt unabated. Unfortunately we are already seeing some signs of moderate curtailment as some of Asia's dollar reserves are going into commodities and infrastructure.
The end game will be interesting. There is only a small chance that this will end optimistically. I guess it can if "they" can hold things together AND there are significant technological advances to dramatically increase world-wide productivity. An example of this would be perhaps a significant advancement in alternative energy sources.
So it is a waiting game. I think the bulls would have to wait too long for an optimistic ending.
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