If the deficit keeps increasing and more tarps like TARP II,III,IV,V happen wont inflation hit very hard? I read that in the late 70s the interest rate to buy a house was 15% Can't this happen again? What will happen to stocks if that happens?
Stocks will take a shit as will home prices. Why would a foreign country want to hold US debt at the current rate? They won't. Thus, interest rates will rise eventually.
Everyone needs to stand back and get away from the conventional wisdom on bonds and the dollar. If Chinese growth is collapsing, then yes, it is likely that China will no longer add to their hoard of dollars, and may even become a seller in order to raise cash for their own economic stimulus. Well, the reason growth in China is collapsing is because their cusstomer (the US) has stopped buying tvs and is instead saving their money. This money is deposited in banks, which, not having anyplace profitable to lend it, buys US bonds. If the Chinese are no longer adding reserves, that means they are losing reserves. Expect the renminbi to be devalued before the end of 09 (setting of a brutal trade war). I could easily make the case that the scenario the world faces right now will lead to further dollar strength (against all currencies except the SF and the JY), and continued low gov't bond rates.
The dollar has been in secular decline ever since the Federal Reserve gave us the "advantage of an elastic currency" The downtrend seems to be well intact.
The question is, what is going to happen to every other country's currency in 5 years? The way things look, the whole world has issues, not just the U.S. The dollar's value is relative to other currencies, that's why it's holding on right now. That is what Peter Schiff got completely wrong. He got every prediction right except for the USD and gold. He didn't think it through and realize most currencies will tank faster than the USD.