SIMPLE ECONOMICS LESSON

[Glenn W]

Yes, you are correct Iguana--- it is not that simple, nor are the solutions black and white. I understand the difference in the current situation and pure monetary policies, but for purposes of this discussion, I feel the simplification is not a mischaracterization. Given the global economic climate, the possibility of a deflationary period is real, no doubt. At the same time, I truely wonder about the magnitude of this possibility given the lack of international confidence in the U.S. Dollar coupled with America's demand for credit (buy now, pay later).
I would suggest there is also a third option for America and Americans--- hunker down and ride out the Storm. There are no quick fixes for this situation. The problem ( for which there is no known solution), is that American voters will not tolerate a few years of economic discomfort.

[Sea Frog]

Yes, you are correct Iguana--- it is not that simple, nor are the solutions black and white. I understand the difference in the current situation and pure monetary policies, but for purposes of this discussion, I feel the simplification is not a mischaracterization. Given the global economic climate, the possibility of a deflationary period is real, no doubt. At the same time, I truely wonder about the magnitude of this possibility given the lack of international confidence in the U.S. Dollar coupled with America's demand for credit (buy now, pay later).
I would suggest there is also a third option for America and Americans--- hunker down and ride out the Storm. There are no quick fixes for this situation. The problem ( for which there is no known solution), is that American voters will not tolerate a few years of economic discomfort.

I would contend that there is no lack of confidence in the US dollar even after helicopter Ben turns on the printing presses full tilt. The fact is that our crippled economy is still stronger that most all developed countries. This is evidenced by the fall in Treasury yields over the past year or so. International investors are clammering to purchase treasuries even at negative yields a short time ago. They need dollars before they can buy treasuries so demand remains high. I will worry about the dollar when the rest of the world is hitting on all cylinders and we are still in recession. I think we led the world into the global recessiona and we will lead the world out.

Also, the dollar has a self correcting mechanism...if the dollar is weak the US attracts more capital and business investment from foreign entities. When the dollar is strong those things stay put in thier own countries.

Just some thoughts on the US dollar, if people are still afraid of the US dollar and helicopter Ben, then go take some stakes in natural resources as a hedge against the dollar.

[iguana1]

Sea Frog,

Any ideas on how to take stakes in Natural Resources without the following?

1) Attempting to time the market
2) Taking on third party risk
3) Incurring a great deal of overhead

[iguana1]

Glenn,

I agree. I think one of the least discussed aspects of the bailout/stimulus is who is going to supply the credit. There aren't too many options when you look at the cash and confidence required.

[GALAZIO]

Glenn,

I agree. I think one of the least discussed aspects of the bailout/stimulus is who is going to supply the credit. There aren't too many options when you look at the cash and confidence required.

BINGO... There lies the truth. If those who control the supply of credit also supply the flow of funds... and those funds are based on the Dollar... then why hesitate? Only reason to hold lending is that you (the banker) know that the only form of recovery is the dollar... and what if the dollar was no more? Let's assume replaced with something else... I bet short term funds can be had. Long term? forget. No way for the elite to recoop. Better off saying put, break the system and usher in your own currency based on??? Maybe those Natural Resources that can be found in Mexico and Canada...????

[Sea Frog]

Sea Frog,

Any ideas on how to take stakes in Natural Resources without the following?

1) Attempting to time the market
2) Taking on third party risk
3) Incurring a great deal of overhead

I am not advocating that the hedge should be put in place because the I think the dollar remains strong.

But...

1&3. Anytime one invests a lump sum, you are timing the market, take small position in natural resources over time through purchasing an index. Plenty of ETF's out there.

2. All investment involves some risk, even Treasuries. If it is not third party risk, it will be reinvestment risk, interest rate risk, etc. No such thing as a risk free way to do anything including putting money in a savings acocunt.

[iguana1]

Sea Frog,

Well put. I have not had a great ETF experience as the loose correlation (between ETF and commodity) always seems to work against me.

Couple more years like this and I might start subscribing to the NWO/tin foil hat theories.

I am not advocating that the hedge should be put in place because the I think the dollar remains strong.

But...

1&3. Anytime one invests a lump sum, you are timing the market, take small position in natural resources over time through purchasing an index. Plenty of ETF's out there.

2. All investment involves some risk, even Treasuries. If it is not third party risk, it will be reinvestment risk, interest rate risk, etc. No such thing as a risk free way to do anything including putting money in a savings acocunt.

[GALAZIO]

Sea Frog,

...Couple more years like this and I might start subscribing to the NWO/tin foil hat theories.

How long does it take before you believe what is front of your eyes???

from 1983: http://www.youtube.com/watch?v=7PAJJ5eRvQw

[iguana1]

Galazio,

The skepticism isn't around motive. It is more around ability (i.e. those in charge would be smart enough to plan and execute on it). My basic rule is: Never ascribe to evil that which can be explained by stupidity and incompetence.

That said, it is hard to believe that this ridiculous dance around the stimulus bill isn't scripted. Could the Dems possibly tee up a better softball for the Reps?