I just read this whole thread. Some ridiculous points and statements of "fact" that are completely false.
First, the price of the dollar is not only based on the size of the budget deficit or the trade deficit. People like to talk about those stats because that is what the layman understands. The price of the dollar is based on demand for it and supply of it. The supply side is driven by the fed/treasury monetary policy. It is pretty obvious what Ben's policy on that is. There will NEVER be a supply problem to drive the dollar up. NEVER.
That leaves us with demand. Demand is multifaceted, but is greatly influenced by inflation, real return, stock market health etc. What it boils down to though is that there will be demand if the real yield on the dollar (treasuries) is acceptable to the buyer given the amount of risk associated with buying. Nothing more. RRR. Risk Reward Ratio and real yield.
Real yield is driven by inflation. If yield on a 2 year note is 2.9% and inflation is 8%, real yield is negative 5.1%. THIS IS WHY (one of the reasons) CPI/PPI numbers are played with by the government!!!! No one would buy treasuries if the real inflation numbers were presented.
Risk is characterized by one thing. The ability of the government to pay back their debt. How does a government pay back debt? Through the collection of taxes. What happens if the economy slows? Less taxes? See the REAL reason why the government has to keep things plumbed with cash? A slowing economy results in a weakened dollar. Weakened dollar means less debt access given to the gov.
There has been a shift in the mood on wall street. Count on gold to test 830 in the next month or so as money comes into stocks as people begin to think things are fine and money comes out of commodities for a bit. Gold will begin a long consolidation until after the election. It will go back up. Count on it.
And oldcameoproofs guy...if you really think gold is going down 40%, you WOULD sell now. What your lack of selling tells me is that you dont have conviction in your thesis. Why wouldnt you?
And for the person that asked about a definition of economic sovereignty. I would define it as the ability to act in an independant manner economically that is not influenced by the rest of the world. Funny that Hillary says that...given that she and her husband were all for NAFTA. Economic sovereignty is a thing of the past. Fiscal policy of both our government and joe 6 pack have ensured that is a pipe dream for many many years for the United States. We cannot be sovereign in any manner economically until we are no longer dependant on other countries for import of necessities....i.e. energy.
Oh...and another problem the fed has...is that as real yield is seen to be negative AND the stock market starts to recover in the second and third quarter, the ten year yield will begin to rise. What happens with the 10 year? It is tied to the 30 year mortgage rates. Just what the fed needs to save the housing markets.
It used to be that they would lower interest rates. That obviously didnt work this time. The only thing that saved the markets was the ingestion of worthless MBS and other derivative garbage onto the balance sheets of the fed backed by the treasury (read: taxpayer).
My point is that this risk WILL be priced into the return on the treasury. That is why junk bonds pay 20%!! This risk premium will be passed on. The government play is to pass it onto you.
And oh...btw, the fact that the fed/treasury did this was UNCONSTITUTIONAL!! No one but the congress can allocate/spend money, not the president and certainly not some lackey cabinet member that used to be chairman of Goldman Sachs.
I wrote my senator and threw a fit. Nothing will be done though...you know why? Because Amercians are spoiled arrogant little biotches that have become so soft it makes me want to puke. People need to rise up and demand adherence to the constitution. Will you do it?
<< <i>Risk is characterized by one thing. The ability of the government to pay back their debt. How does a government pay back debt? Through the collection of taxes. What happens if the economy slows? Less taxes? See the REAL reason why the government has to keep things plumbed with cash? A slowing economy results in a weakened dollar. Weakened dollar means less debt access given to the gov. >>
Going a little OT perhaps here but thought I would bring up a serious problem for a lot of county governments. The collection of taxes is, as you point out, a pretty big part of greasing the wheels of government. On the federal level, they have a lot of latitude and many resources. They have the Fed too. There are a lot of city and county governments that were already bleeding out. The escalation in home values and the actual sales really infused a lot of cash into those economies as property taxes are assessed on property values. Values drop and things are ok until those properties start to move through foreclosure or just plain vanilla sales without an attendant demand driven increases in home values. This works differently in different jurisdictions. Here, in San Diego, there is Prop 13 holding the taxation steady for existing owners. The city is, whether technically admitting it or not, bankrupt. It will not get pretty at all here and I suspect in many other places. This is why I would caution people to do a lot of due dilligence before buying any munis that aren't of the highest rating. (If I am wrong here, I don't mind a correction. Always looking to learn a little or a lot more as I can and revise my perspective.)
Comments
I just read this whole thread. Some ridiculous points and statements of "fact" that are completely false.
First, the price of the dollar is not only based on the size of the budget deficit or the trade deficit. People like to talk about those stats because that is what the layman understands. The price of the dollar is based on demand for it and supply of it. The supply side is driven by the fed/treasury monetary policy. It is pretty obvious what Ben's policy on that is. There will NEVER be a supply problem to drive the dollar up. NEVER.
That leaves us with demand. Demand is multifaceted, but is greatly influenced by inflation, real return, stock market health etc. What it boils down to though is that there will be demand if the real yield on the dollar (treasuries) is acceptable to the buyer given the amount of risk associated with buying. Nothing more. RRR. Risk Reward Ratio and real yield.
Real yield is driven by inflation. If yield on a 2 year note is 2.9% and inflation is 8%, real yield is negative 5.1%. THIS IS WHY (one of the reasons) CPI/PPI numbers are played with by the government!!!! No one would buy treasuries if the real inflation numbers were presented.
Risk is characterized by one thing. The ability of the government to pay back their debt. How does a government pay back debt? Through the collection of taxes. What happens if the economy slows? Less taxes? See the REAL reason why the government has to keep things plumbed with cash? A slowing economy results in a weakened dollar. Weakened dollar means less debt access given to the gov.
There has been a shift in the mood on wall street. Count on gold to test 830 in the next month or so as money comes into stocks as people begin to think things are fine and money comes out of commodities for a bit. Gold will begin a long consolidation until after the election. It will go back up. Count on it.
And oldcameoproofs guy...if you really think gold is going down 40%, you WOULD sell now. What your lack of selling tells me is that you dont have conviction in your thesis. Why wouldnt you?
And for the person that asked about a definition of economic sovereignty. I would define it as the ability to act in an independant manner economically that is not influenced by the rest of the world. Funny that Hillary says that...given that she and her husband were all for NAFTA. Economic sovereignty is a thing of the past. Fiscal policy of both our government and joe 6 pack have ensured that is a pipe dream for many many years for the United States. We cannot be sovereign in any manner economically until we are no longer dependant on other countries for import of necessities....i.e. energy.
siliconvalleycoins.com
It used to be that they would lower interest rates. That obviously didnt work this time. The only thing that saved the markets was the ingestion of worthless MBS and other derivative garbage onto the balance sheets of the fed backed by the treasury (read: taxpayer).
My point is that this risk WILL be priced into the return on the treasury. That is why junk bonds pay 20%!! This risk premium will be passed on. The government play is to pass it onto you.
And oh...btw, the fact that the fed/treasury did this was UNCONSTITUTIONAL!! No one but the congress can allocate/spend money, not the president and certainly not some lackey cabinet member that used to be chairman of Goldman Sachs.
I wrote my senator and threw a fit. Nothing will be done though...you know why? Because Amercians are spoiled arrogant little biotches that have become so soft it makes me want to puke. People need to rise up and demand adherence to the constitution. Will you do it?
siliconvalleycoins.com
<< <i>Risk is characterized by one thing. The ability of the government to pay back their debt. How does a government pay back debt? Through the collection of taxes. What happens if the economy slows? Less taxes? See the REAL reason why the government has to keep things plumbed with cash? A slowing economy results in a weakened dollar. Weakened dollar means less debt access given to the gov. >>
Going a little OT perhaps here but thought I would bring up a serious problem for a lot of county governments. The collection of taxes is, as you point out, a pretty big part of greasing the wheels of government. On the federal level, they have a lot of latitude and many resources. They have the Fed too. There are a lot of city and county governments that were already bleeding out. The escalation in home values and the actual sales really infused a lot of cash into those economies as property taxes are assessed on property values. Values drop and things are ok until those properties start to move through foreclosure or just plain vanilla sales without an attendant demand driven increases in home values. This works differently in different jurisdictions. Here, in San Diego, there is Prop 13 holding the taxation steady for existing owners. The city is, whether technically admitting it or not, bankrupt. It will not get pretty at all here and I suspect in many other places. This is why I would caution people to do a lot of due dilligence before buying any munis that aren't of the highest rating. (If I am wrong here, I don't mind a correction. Always looking to learn a little or a lot more as I can and revise my perspective.)
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