I don't know if this is intentional or not, but the Obama administration is about to have the greatest reallocation of resources/income/assets in the history of mankind occur on its watch.
The budget is beyond repair. The Fed's $300 Billion long bond purchase is only the beginning of a strategy that has no end game. This will lead to the Fed continuing to create money out of thin air, devaluing the US$ at some point.
For Americans with debt: i.e. mortgage, car loan, credit card, etc... (pretty much describes EVERYBODY) this is wonderful news. If the value of the US$ falls 75% so does the real amount of the debt they owe. Of course the folks on the other side of the ledger are none too happy. Hence the redistribution of wealth.
Forget your politics. Doesn't matter if this is "good" or "bad". This is going to happen.
These kinds of societal resets never go smoothly.
You heard it here first. More soon.
Mentatt
10 comments:
If the dollar falls but income and debt total remains the same, how does that help Americans? Imported goods, especially commodities like oil, will increase in cost. Goods produced in America won't generate more income from a falling dollar. It doesn't change the debt to income ratio of most people in the U.S. but will reduce the amount of goods the unchanged income can purchase. Sounds like bad deal to me.
The bond owners are going to get clipped, one way or the other. If the government doesn't create more money, the borrowers will default, and the bondholders get clipped. If the government prints more dollars, the bondholders may get paid in full, but in cheaper dollars. This is because the damage is ALREADY DONE. Asset values on practically everything are down 40%.
This is because the expectation of future appreciation of long term assets is gone. This is not a dollar thing, it is more the relative value of long term assets to consumables. Your house is just not worth the same number of cumbers and cell phones as it used to be.
What's left is just allocating the losses. Name your poison.
Regards,
Coal Guy
Thanks guys. I will flesh out my thoughts in my next posts...
Or, the "Greatest Generation," (the people who lived thru World War 2,)" the people who are going to consume all these government benefits (social sec, medicare, veterans, etc.), and their conspirators in crime, the baby boomers (born between 1946 and 1964), all will collectively decide that we either hang together or hang separately, and begin to demand that less government spending actually MEANS less government spending. No increase in social sec. checks for a few years, no benefits till 70, fewer medical benefits, people have to get healthier and "live a little less," etc., etc. I know I'm just talking to myself, but this little disaster doesn't have to happen. It is going to happen, but it doesn't have to happen. I can, theoretically, work past 57. :) I won't like it, but I could do it.
Doesn't having all of us boomers work for more years cause a bigger unemployment problem for the very group who need to work most-people raising families?
If we try to inflate too much to fast, I'm certain the Chinese will find something sufficiently nasty to balance things out.
The US has been run like a 3rd rate banana republic for the past 30 years and the bill is about to come due.
Everyone will suffer.
Kathy:
Not even a little bit, though in positions of establishment it might make moving up harder.
After all, just because you are raising vegies and pigs for your family doesn't mean the guy next door can't do the same thing without harming you.
Can it cause over capacity? Sure, in the short run. Which is why you gotta let things sort themselves out without govt interference (good luck with that!).
An interesting thing about the Fed purchasing bonds is that the interest from them is returned to the treasury. The are essentially a zero interest loan, no matter what the actual rate may be.
Regards,
Coal Guy
This is what I was talking about here; though I was in a hurry and didn’t elaborate.
At 6:00 AM, before the coffee kicks in, you all make my brain hurt. I am going to feed the pigs and weed some beans.
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