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I guess all you wingnuts should head to your millenium bunkers.
I bet a lot of people wished they had packed a canoe on the Titanic. Funny how the Titanic's crew also said everything was OK until it was obvious the ship was going to sink. I suspect the same analogy will hold true with the country. A "millenium bunker" might not be a bad idea...
Posted Jun 01, 2009 09:33am EDT by Henry Blodget in Investing, Recession
Related: dia, spy
From The Business Insider, June 1, 2009:
In its own inimitable language, S&P warned last week that a debt-to-GDP ratio of 100% is "incompatible with" a Triple A rating. What it meant is that the United States is rushing headlong toward a ratings downgrade--and, in the opinion of some, disaster.
In a much-discussed piece in the FT this week, John Taylor echoed many others in clanging the alarm bells.
Under President Barack Obama’s budget plan, the federal debt...is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years...
I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis.
To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?
Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.
The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.
Read the whole thing >
Taylor points out that, in theory, it's not too late: We can change course before we hit the wall. But there's no chance of that happening before most people agree that the economy's back on firm footing. And, even then, economists will rush to point out that the government killed the recovery in the 1930s by clamping on the brakes too fast, and politicians will view hyperinflation as the lesser of two evils (the greater being not getting re-elected).
So, again, brace for hyperinflation.
The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.
The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?
Bond market is sinking because investors see much better returns in the stock market. Sky is not falling.
if the japan model is correct if richard koo is correct, long term economic stagnation comin up.
not a meltdown. crummy low paid jobs will no longer just be available to illegals they will be made available to everyone.
That's already been the case for the past ten years or so.
Bond market is sinking because investors see much better returns in the stock market. Sky is not falling.
The sky won't be falling for 5-10% of Americans who have properly prepared. I plan on thriving in a depression, even a hyperinflationary one.
The bond market has sunk hard on many days where the Dow has fallen as well. Dollar is sinking pretty readily. Inflation will be self-perpetuating and cyclical in nature since the Fed cannot raise rates at this point without utterly devastating the economy. You ain't seen nothin' yet.
The sky won't be falling for 5-10% of Americans who have properly prepared. I plan on thriving in a depression, even a hyperinflationary one.
The bond market has sunk hard on many days where the Dow has fallen as well. Dollar is sinking pretty readily. Inflation will be self-perpetuating and cyclical in nature since the Fed cannot raise rates at this point without utterly devastating the economy. You ain't seen nothin' yet.
Sky is not falling for anyone except for those who are buying gold now that it is more expensive than ever.
I am hoping for a faster collapse in prices, yields and interest rates. We need a major deflation to set our economy for a real expansion instead of inflation driven false wealth.
The Dow is worth just 9 ounces of gold, down from over 40 ounces of gold. A drop of 75%. That's called a depression.
If you want to measure it in dollars, your loss.
I removed the USD chart, because I had entered in the wrong parameters. Last year this time the USD was 1.55 compared to Euro, and now it is 1.36, so it has actually gained.
The DOW is not measured in gold, and even if it was I don't see a 75% drop in three months. How did you come up with that?
It is not a bad idea to prepare for the worst though, so I do not mean to critisize your preparations. I have prepeared too, althoug I think the chances of collapse are less and less likely.
I removed the USD chart, because I had entered in the wrong parameters. Last year this time the USD was 1.55 compared to Euro, and now it is 1.36, so it has actually gained.
The DOW is not measured in gold, and even if it was I don't see a 75% drop in three months. How did you come up with that?
The Dow is a farce. Use the S & P 500.
The Dow can replace companies anytime like it did today.
Lets take out Citi and Gm and replace them with Cisco and Travelers. Yes, that is a legitimate measuring stick.
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Not a total Collapse but very slow for a Long time.
I plan on thriving in a depression, even a hyperinflationary one.
