Jim Jubak, no lover of the Fed, argues that if we're not careful we're heading down the road that Japan went down and paid for dearly for over a decade: http://articles.moneycentral.msn.com/Investing/JubaksJournal/IsUSEnteringJapansNightmare.aspx After all, the fed has overinflated the money supply; we've had a housing bubble and ensuing market run up as a result; and banks have seemingly endless write offs and are reluctant to really deal with the issue. So do you think he's overstating the case? Or do you think we may be heading down a Decade of Disaster?
an empire cannot go down as long as its military still dominates everybody else. I don't understand why people don't understand this. There is a bully living in a small town. All his neighbors are afraid of him and have to finance his lifestyle. Sometimes the bully overextends himself and creates a lot of deficit, so he prints a lot of money to keep the lifestyle going. The neighbors are not happy, as the money they earned from selling goods/services to the bully is going down in value, but there is nothing they can do, they all know that the bully runs the entire town. They have even seen the bully killed a resident because he failed to obey the bully's orders. So the bully rules the town, day after day, after day.
dozu888: Perfect post. These clowns can't seem to wrap this small concept around their inflated egos: Rome wasn't built in a day, but as anyone who bothered to read Gibbons understands, it didn't decline in a day either.
Agree, I have failed to profit to the extent that I should have because I failed to factor in the realpolitik influence of vested interests.
He's completely overstated the picture. The president, the presidential candidates, and the reps in both houses may have no clue about economics, but people at the Treasury and Fed do. They understand that markets need to clear. The BoJ and Japanese technocrats don't. The US is inherently a much more free market economy and society than Japan, thus any socialist efforts and attempts to prop up prices will meet with determined opposition. By contrast, almost no one in Japan opposed the government intervention and stimulus in the 1990s. It's a world of difference. The main problem right now is that house prices need to go down. That will solve the problem of oversupply and excessive credit speculation. Same with the price of mortgages (although this has already happened). The market slump will clear the supply/demand imbalance, homes will become affordable again, stupid people will lose money, and then life will go on as normal and growth will resume within a year or so. This is what is so stupid about Bush and the Presidential candidates - they think that propping up the housing market is a good idea. Wrong. The best thing for the housing market and homeowners long-term is to let the bust happen as fast as possible. The more they try to prop up prices and delay the inevitable, the longer the market takes to clear and the more bad loans and bad purchases at inflated prices will occur. Sometimes it boggles the mind how utterly thick, ignorant, and moronic political leaders can be. It is the economic equivalent of a politician recommending quack medicine, leeches and blood-letting to cure cancer patients. Not a single presidential candidate deserves to hold office if this is how ignorant and wrong-headed they are. Go to f*cking school you schmucks and learn some economics - you have a responsibility to do so before presuming to run a country.
The Greenspan put was a death defying act that can only be done once. They are trying to do it again. It will not work. New ballgame. It wouldn't have worked in the first place if China did over pay for our long bonds. They did this to prop up our dollar, so the American consumer, would buy their products. They could have never jump started their economy if it wasn't for the American consumer. This - meaning overpaying our long treasuries - had the effect of making the long mortgage rates low for a long period of time or if you will created a flat or inverted yield curve. Most look to the Greenspan put as causing the low long rates and that was part of the reason. But, Asia - China and Japan too for that matter - kept buying the bonds it was to their advantage to keep our dollar fairly strong. Those two economies at least in the last decade or two depend on the American consumer. So, the normal conforming type of borrower, the ones who had full docs loans, verified income, all that stuff had their homes for a long time, bought new homes, refinanced, or took cash out or whatever. But, one thing they all did and I'm one of them, is took out 30 year fixed rate loans at about 5.50 to 5.75 percent. You've got level payments for ever. They (I personally) don't care if the value goes up or down. They (I personally) am going to live my home for a long time. This market dried up. Financial isntitutions were sitting on tons of liquidity lost the best borrowers. They refinanced and they were done at their low fixed rates for the rest of their lives - a lot of them will retire with their mortgages, because they can make more of a return than what they could invest than if they paid off their mortgages with cash. So what did the financial industry do? They created a new market. They call it subprime. But, its not all sub prime borrowers - mark my words this will come out later. It is ordinary people who bought homes they could not afford and didn't understand the terms of the mortgages they were getting into. And I'll skip a couple of steps - as it is well chronicled - the bubble burst. But, that's just part of it. Now China is holds a trillion dollars of our long treasuries, that they over paid for. That means they hold the paper in a little over 10 percent of our national debt. And they are uncomfortable with it. Wouldn't you be? They want to diversify their holdings. They've said as much. But, it is not to their or anyone's advantage to dump billions of treasuries. But, they are not going to buy a trillion more. That I can assure you. As a result the Fed cutting the short term rates at a rapid pace will not create the liquidity many expect. It will just flood the market with dollars and there will be less demand to buy the dollars. Less demand means more supply. More supply means lower prices for Treasuries. Lower prices for Treasuries means higher rates for Treasuries. Inflation could become a problem So it is not the housing crash that really caused the problem. The housing crash is a symptom. The problem is our economy both the government and the American consumer is in debt to the gills. So the Fed cuts will have an effect. But, it will not be the same effect as the Greenspan put.
There are big difference between Japan and US. Japan has very limited natural resources; it has been and will continue to relay on import many resource aboard; even food. Japan can only to relay on manipulate its currency to get ahead other countries. Thanks to mighty US military; US don't have to worry about conquer other countries' for their resources.