Originally posted by HimWhoHathAnEar
Originally posted by cpdaman
latest trends suggest money is flowing from high risk moderate reward stock markets to lower risk lower reward bond markets.
Many analysts are predicating multiple rate cuts and further agressive measures from the fed, with fed funds rate going down toward 3.5 percent (at
least) by the middle of next year.
Wouldn't the rate cuts make the 'lower reward' of bonds dip into a negative when factoring in the inflation of said cuts?
I see gold and silver through the roof and government confiscation (1933 style) not far behind.
on it's "head" my statement seems counter intuitive (that i admit)
and some of the money may be heading overseas to higher yielding bonds and foreign currency's appreciating, BUT their has been a flight to safety in
U.S treasury bills as well (and don't get me wrong a TON of people believe the markets are destined to rise forever, especially the "emerging
The "big wigs" See a violent freeze up of liquidity on the horizon IMO, they know that the reward of gaining less than 10% (if they time this
liquidity drought) perfectly is not worth the risk of being left holding over valued assets when the music stops and trying to rush to the exits
(which could cost them 50% or more *potentially*
The safe haven of tresury bills or bonds yielding 3 or 4 percent (even with depreciation eating away at least the full amount of above mentioned
yield) is "safer" especially when they are SO CONFIDENT the asset prices will drop to values that are *exponentially* more than any depreciation
which will ensure a buying opportunity of a lifetime.
The models and arguments for either hyperinflation or deflation appear to me as framed false dichtomy. they only make sense in a vaccum, not in
reality, liquidity drying up will lead to asset price deflation, heck when the psychology of deflating asset values hits, most people will say uh oh
the government t is going to try to devalue the currency and fast (bonds, notes, whatever) guess what people will do. SELL THEM! and spend it on
gold or silver or food, because they no they are being devalued. . Sure prices for imported goods will rise because the currency is being devalued,
but dollar denominated assets will be DUMPED i.e sold like the plague and what will people pay for them ...not much....because they don't have much
money to buy them with, also with depreciation they know they will be less valuable the next day. If people were employed then any money printing
may be able to flow into higher wages, but most jobs are for goods that are luxury items or at the least "accessory's" and people have more than
enough then they need. Most People have limited disposable income , so when they see the market (stocks) fall they will tend to stop spending
what little they have and consumer spending will slow to a crawl based on the psychology of fear, and this will hurt businesses and employment, as
employment get hurts the cycle recycle's. I'm not sure how business wages could go up in this type of enviornement. I could be missing something
because as asset prices have inflated over the recent years either we deflate back to the "norm" or we inflate our debt (personal debt) away to make
it appear less. the only way to inflate out is with rising wages i don't see this happening in the face of a consumer slowedown and less disposable
income. I mean heck some thing will get more expensive but there are mostly import's i.e oil, and chinese and japanese imports. but not our service
sector jobs wages. (and i conced this will probably have global implications/ suffering widespread as well, not just domestic)
what do you do with people massively unemployed? after cutting back on spending and besides this being an economic emergency ( and you can bet the
constitution will be supsended as this is a national emergency)
i mean alot of people will move back in w/ their parents (who hopefully have a paid off residence and enough fixed income to pay property taxes,
electricity , food,etc. I imagine the large food chains will still be in business because well people need food, it is really not a want,
individual items may become stocked more toward the basics.
anyone heard of anything that is already built and ready for use, connnected by railways, in case of a national emergency the likes of which this
hollowed out economy has never seen? detainment camps. has anyone noticed the higher the standard of living the better the illusion of democracy
their usually is, well what would that say for the laws necessary to maintain order when the standard of living gets sucked into the toilet. will you
be able to question the govt? will gold be confiscated? will dissenters be targeted? will you fall in line, if you don't have access to clean water
or enough food, when stores are looted and the power goes out? Can you survive in nature instead? will brother turn against brother?
sorry for the rant and i would feel better if someone could show a fault in my logic (understanding a fault does not necessarily change the
conclusion, perhaps certain details, actually , hopefully more)
some jobs i think that may be stable in the above scenario would be medical personel, law enforcement, food retailers and clerks, some gas station
clerks detainment center personel
p.s i just had a more pleasent thought that the slowdown in liquidity and asset prices could be drawn out (in the real world not just formula's),
and consumer spending slowdown is gradual allowing the remedy, " money printing " to be translated into employment at a quickening pace, while
slowly consumer price inflation drowns people in bankruptcy and disposable income slowly erodes away , employment slowly worsens, the poorest groups
will fall as the debt is slowly deflated and the deflated asset values come down and meet in the middle (sorry if parts of this better alternative
still show suffering, but the hole we have dug is not going to be gotten out of without pain. and upon furthe examination the key is if in the real
world not a vaccum, the markets can be unwound slowly (and i guess that is dependant on some people thinking the fed will always keep asset prices
high (I think the key is that (liquidity slowly drys up) the fed lowers rates gradually and KEEPS DOING SO, sacrificing the currency may be the better
option, than the total chaos of a deflationary depression, and we literally may have no other options. Iwhich obviously no one would want to point
out) This may be dependant on people refusing to sell when losses appear and avoid a herd of panic selling, or suspending the markets until enough
economists try to convince people to leave their money in (it's just a "correction")
if this latter example does NOT become closer to realityand instead the former does, the motto
order out of chaos will have it's limits tested.
[edit on 22-11-2007 by cpdaman]