Bill Gross Plan to stop house price declines... http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+March+2008.htm ..."Credit Markets, Reregulation, and Home Prices In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities. As a result, the deflating private marketâs balance sheet is being re-nationalized in some cases with increased regulation, in others with outright guarantees and agency lending. Ultimately government programs which support private credit market assets may be required in order to prevent an asset deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices. Since homes are the most highly levered and monetarily significant asset that American consumers own, if they decline much further they will drag the rest of the economy with them. Supporting home prices goes counter to the thinking of Republican orthodoxy. President Bush and Treasury Secretary Paulson argue that markets must "clear" in order to avoid similar mistakes made by Japanese authorities in the 1990s. Yet we may have passed the point of no return for "clearing" markets. Home price declines of 20% are in fact much more of a shock to the American economy than the popping of the Internet bubble and NASDAQ 5000, because the amount of homeowner leverage is so much greater. A 20% negative adjustment not only wipes out all ownership equity for millions of Americans, it turns their homes "upside down" â incentivizing them to let their gardens grow weeds instead of lettuce. The decline needs to be stopped quickly in order to avert additional crises. ".. Question: Has Pimco got a trade at risk if house prices fall further ? If the USA govt does as Pimco demands then... The USD will sink. Arab countries inflation will move beyond the current 8.7%, thus threatening the peg to the $USD. Why would foreign central banks purchase USA treasury bills when the forex write down would be massive ? USA Financial Govt policy must be made with the consultation of USA creditors - Arabs and Asians. Its time to support the $USD, surely. USA get some lanolin for your collective arse, and get ready to take one for the team ( ie ROW - rest of the world ). !
Yes, Pimpco has been bottom fishing the credit markets for the last couple of months. If things get resolved they stand to do spectacularly well. I would bet they are short long term treasuries along with everyone else as well and a collapse in the USD would give them a big score there too. BG is notorious for talking his trades.
There's no sovereign in the history of mankind who has ever re-paid the type of debt the America has run up. America's debt has one of two fates. It will be repudiated or it will be inflated away. There's no other options.
Art Laffer is that you? LOL The debt to GDP argument would be valid if and when there was any sort of repayment of American sovereign debt. Since there is not....and never will be my original statement holds. You don;t grow you way outta debt if their rate of change is increasing at a positive rate. Next.
The real problem is that looking at it as a percentage of GDP is meaningless, because 72% of GDP is consumption. Try it against the other 28%.
You bet me to it thriftybob. Nation is built on consumtion GDP....which is heading down.....best option is to inflate.