I was quietly enjoying a nice glass of red and this landed in my in box. I love reading people's take on the economy and look forward to the gems from Maudlin so settled in for a nice read, by the end of it I was quite sober (especially as my macro theory is predicated on inflation and currency devaluation leading commodities to outperform equities, which they may still do under Shilling's scenario but I am trading for benchmark performance but absoluet return). http://www.investorsinsight.com/blo...-economic-outlook-collapsing-on-schedule.aspx
It's a good analysis, however, I think that Shilling spent a lot of time underscoring the current issues (which have already been well spelled out and known, and not enough time, on the potential effects of fiscal and monetary polices. 1) One major difference between this recession and the Great Depression is that Hoover waited a good three years before he began to inject any money into the system and stop the bank runs. His Reconstruction Corporation hardly put anything into the system, and money really didn't start flowing until Roosevelt came into office. Hoover, was essentially the some do-nothing Republican as Bush, but unfortunately had three years to mess things up even more, leading to the second stock market crash in 1932. 2) The effects of massive fiscal stimulation is not known, since it has never really be tested. Hopefully, Obama is able to muster the necessary public support for injecting money into the system. Yes, there are those on Conservative Radio and Republican Minority that are encouraging the failure of our major industries, further exasperating the problem as Hoover's policies did, but it appears that Democrats together with some moderate Republicans can get things going quickly. Schilling has been right on throughout the last couple of years (he has been forecasting this recession for many years), however, he has his reputation on the line, that President Obama has wrong ideas that will fail. His alternative, is what is spelled out in his article. I think I would rooting for Obama.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aa6uZ6OYQebc&refer=home Bad News âBad U.S. economic news is now hurting the dollar rather than helping it,â Nizam Idris, a strategist at UBS AG in Singapore, wrote in a report today. âInvestors are increasingly nervous about another Fed rate cut and increasing government debt issuance. The Bush administration is attempting to figure out how much aid they can provide.â Maybe the market is starting to realize that either Obama is going to have to spend substantially more than $700B to save the economy (likely well over $1T to make a significant impact), or he is only going to do $500-700B and the US economy is heading for a very bad recession indeed, either way it is bad news for the USD.
The saving grace is that the whole world is going to have to implement very aggressive fiscal stimulus to save their own hide. I think that there is a constant back and forth flow between the currencies based upon lots of developments. Lack of confidence and trust in U.S. corporate governance and financial system has to be A1 right now. And, zero treasury rates probably doesn't help - but Japan is right about there also for many years, so it is a wash.
What would happen should a country like China face a possible insolvancy and it was forced to liquidate its massive dollar reserve on the open market? Will this not create a domino effect, much like the CDS debacle that nearly brought the whole financial system to its knees, that will effectively place the rest of the world at risk? Which nation will be the counterparty to take the other side of the trade?
I think shilling is wrong on inflation. "fiat governments be can counted on creating inflation, always" http://www.itulip.com/images/indlationhistory1801to2000.gif
The battle of the fiat currencies is certainly going to be interesting as many countries are in debt rather excessively.....and even those that are energy independent are not so rich anymore....and love credit as much as anybody else.... One really has to wonder if politicians really know or care where borrowed money really comes from......ie the average Chinese that saves is not rich...but yet US politicians act as if Chinese are truly wealthy people.... Perhaps the US should have "wake up call" day....All electricity and credit cards, atms should be shut down for a day....Let all citizens appreciate a little more as to how many third world country people live.....and perhaps what they may want to avoid.... As far as the dollar not being a currency of choice even on a diluted fiat basis....the fact is there is very little other choice....just what other currency can one run to besides the US dollar ? And through what means ? The tide rises....and the tide falls.....and everyone who is still alive is in a boat....although some boats have leaks and will sink....
i second that. note that if he is wrong on inflation then he is also wrong on US dollar and therefore wrong on commodities. he then must be wrong on equilibrium P/Es and therefore wrong on S&P trajectory. so apart of incoming housing problems (which is today known even to amazonian sloths) and consumer conservatism his analysis may not be that useful...