Monday, 10/7, Market WrapUp (Taking it in the Shorts)

Financial Sense Online ^ | 10/7/2002 | James J. Puplava

[Tauzero]

"I bought a new car last week."

New new, or new used?

If I was really worried, I'd buy an old car w/o the onboard computer necessary to achieve federal efficiency and pollution standards.

[razorback-bert]

If I was really worried, I'd buy an old car w/o the onboard computer necessary to achieve federal efficiency and pollution standards.

Yea, that why I need a 1960 vet.

[grania]

New new, or new used?

It's a "new-new" car, four miles on the odometer. I wanted a car that I could depend on for five or more years, if things get really awful. It's a little Hyundai; the warranty is fantastic, and the dealer reputation is excellent.

[TheLion]

Thanks!

[razorback-bert]

Bogfit: your Question about Japan
by: silvergolong 10/08/02 03:04 am
Msg: 43612 of 43750

what are the chances that Japan would liquidate their U. S. treasury holdings to re-capitalize their failing banks, and what effect would that have on U. S. Banks and markets?





Huge. IMHO:

Some say that the japanese would NEVER be stupid enough to buy and hold so many US treasuries, that they MUST have demanded (or are currently demanding) some sort of backing--like gold, maybe, or oil even? If this is the case then they have been negotiating furiously behind the scenes with the FRB and the Treasury dept. Maybe that's why we're invading Iraq, to line up the collateral the japanese require to keep holding the treasuries. Hey crazier things have happened. Remember, the same folks who run the world today are the ones who didn't think twice about getting China hooked on smack in the 19th century.

But let's ignore what we don't know is happening behind closed doors. Let's take everything at face value and see where it leads us.

Scenario #1: If the japanese start flooding the market with US treasuries, their price will drop, and US interest rates will soar. The value of the dollar will drop dramatically, and especially against the yen. We'll get general price inflation. The US stock market would keep declining, but then would start to flatten out, as inflation will make life much easier for all debtors, and corporate america would thus benefit as they are huge debtors right now. Plus the devalued dollar would really help US exports. Price of gold would rise dramatically, which would cause a number of US bank failures. PROGNOSIS: Bad, but manageable--assuming that hyperinflation does not occur. Both corporate and consumer borrowers would get relief thanks to inflation. Corporations would slowly rebound and start hiring again. Inflation would ravage savings and paper assets, but high interest rates would eliminate further debt creation. Some of the most parasitic banks would fail (i.e. the bullion banks), and profitability of all banks will take a big hit. Assuming the gov't has the sense NOT to bail out the bullion banks, and simply dissolves them, we would finally be rid of these parasites, which would bode well for our economic future.

Scenario #2: Assuming the japanese banks sell their stock holdings, the Nikkei Dow would cave in. US interest rates would remain low and keep dropping. US equities would go off a cliff. Debtors would get squeezed and default rates would soar. Gov't bond prices would stay high; many corporate bonds would default. All paper assets (except for gov't bonds) would be destroyed. Real estate and other illiquid, non-fungible assets (i.e. capital equipment) would crash in value. Price of gold might drop in nominal terms, but not nearly as fast as other assets; in other words the relative price of gold would actually go up. Some US banks would fail due to loan default; whether this triggers bank runs is debatable. Assuming Fed bails everyone out, the banks would probably do quite well in this scenario. (history bears this out: after the 1933 bank holidays, banks were INCREDIBLY profitable during the rest of the great depression). PROGNOSIS: horrible for everyone except the banks. Could easily lead to tremendous social unrest and martial law in the US. The same general conditions led to rise of Hitler and Stalin in 1930s. Bad. Very Very Bad.

Well the japanese oil collateral scenario makes sense and certainly fits in with current events. The bullion banks don't want the japanese to sell off their treasuries (scenario #1) as that would cause them to fail, and IMHO, they are the instruments of the Powers That Be. They will push for the liquidation of japanese equities, and thanks to them we'll get a crushing deflationary depression, mayhem, and maybe fascism.

Hopefully they will get stopped before they can perpetrate this crime.

[EVO X]

When Ronald Reagan was president, the economy was much worse, and we were fighting a cold war. Somehow he managed to communicate his agenda on both issues at the same time. I wish this President would do the same.

You essentially want Bush to pull a Clinton, with a "I feel your pain" statement just to let everybody know that he cares. . He can't really bash democrats over the head right now on economic issues, when he is trying to get their support on the war on terror.

I would love it if Bush would come out and tell MR. and MRS. Soccer Mom to cut up their credit cards and quit complaining. But that isn't going to happen.

[Huck]

You essentially want Bush to pull a Clinton, with a "I feel your pain" statement just to let everybody know that he cares. .

Not really. If I thought it would help the GOP for him to say it, then fine, say it. My impression is that is what he has been doing. I saw him on TV the other day telling folks he wants us to know he's "thinking a lot about the economy." Yeah? OK. That's swell. Now what? Seems like a tepid rendition of "I feel your pain" if you ask me.

Maybe it's all the media's fault, I don't know. But what I would like to see is a clearly articulated plan for economic growth communicated effectively and incessantly to the American people. And oh yeah, I want it to work. Lower taxes, ease small business regulations, raise IRA caps, whatever. Do some good conservative stuff.

He can't really bash democrats over the head right now on economic issues, when he is trying to get their support on the war on terror.

I just don't buy that. Go back and see what FDR did in 100 days.

I would love it if Bush would come out and tell MR. and MRS. Soccer Mom to cut up their credit cards and quit complaining. But that isn't going to happen.

I am sure there are plenty of people on wall st, many of them campaign contributors, that don't want the President to say that. I am quite sure the banking industry likes consumer credit habits just the way they are. Hell, it's the only thing making money for banks these days. And if you haven't noticed, monetary policy isn't exactly discouraging consumer debt at the moment.

And anyway, telling Americans to eat their vegetables is hardly a winning strategy. I'm with you. I have a zero balance on my credit cards. But consumer debt has been the only thing propping up the economy the last 3 years.

[EVO X]

And anyway, telling Americans to eat their vegetables is hardly a winning strategy.

LOL

[Huck]

I'm sitting here thinking about our conversation. I don't know. Maybe I am wrong. Maybe there is no point in trying to squash Democratic criticism. It's not as if the Administration is made up of amateurs. I guess I am simply saying I'd like them to take away the potential issue of the economy. But if they respond to every criticism, they end up on defense instead of offense. So who knows? Perhaps it'll all work out.

[EVO X]

Perhaps it'll all work out.

Are we there yet? Not yet, but we will get there once again...