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October 28, 2007


I'm sure glad my house is paid for :)

the acceleration of this process sure seems to make it a lot more likely that we're going to end up like Argentina, with a massive meltdown, in the near future.

One difference is that calling us could bring down the callers. Not saying —at all— that disaster is thereby avoided or that we're truly "too big to fail", just that it might look different. A couple of economists to keep an eye on would be Krugman and Dean Baker, both of whom know the sequences of the last couple of Argentine crises quite well. Also Brad Setser I think.

Of foreseeable things, the one that worries me a little is that the Fed might get beaten into a successive round of interest rate decreases great enough to touch off high inflation.

I wonder what the effective leverage factor of all the (CDO^k)s, credit swap derivatives, and committed, deferred offerings to Eris that have been written on top of the same lousy bubble mortgages is?

(The subconscious is amazing. Didn't mean to write a new meaining for CDO, but there is is: committed deferred offerings.)

When your Dollars come wrapped in 'securities' with pretty bows on them, but hiding undisclosed Risk, in the Hundreds of Billions - Investors will get motivated to look for a more reliable investment currency.

The Sub-prime Money-Grab wasn't just bad monetary policy, it's an unfolding disaster that has sufficiently undermined global Trust to set in motion a tectonic shift By The Money People away from confidence in US and towards the Europeans.

Bush burns everybody.

gjohnsit's diary at dkos is full of a lot of gold standard silliness, unfortunately. That said, the US dollar is going to continue to be under pressure. My Canadian client organization is sure finding me a cheap resource lately :-)

Did I ever tell you how much I love your analyses, as well as your writing? If not, well it's true.

Another apparent gold partisan, Ed Steer, goes down the rabbit hole and discovers Larry Lindsey:

He appeared delighted that Wall Street had been able to unload hundreds of billions of dollars' worth of (now toxic) CDOs on the rest of the world, saying that "we Americans were very clever" in doing this.

He showed graphs of the real estate market including the number of months of supply and said that now that the real estate credit cycle had ended, few would be able to refinance mortgages that had had teaser rates, and that housing prices were going to go into a steep decline.

There was much more to the speech than this, but it was all along the same lines of "yep, we created this economic, financial, and monetary monster, here's the road map of how we did it, and the results. Now it's up to the citizens of the United States and the rest of the world's financial community to live with the consequences."

His comments were eerily similar to those made back in the early 1970s by then-Treasury Secretary John Connolly when he said (to European central bankers, I believe), "It may be our currency but it's your problem." Going further back in time, Marie Antoinette said, shortly before being relieved of her head, "Let them eat cake."

I'm not a golder fwiw; there is no absolute frame of reference. But that's a trivial matter compared to some things …

On the other hand, a little later in the article Lindsey himself provides a lesson in the need not to overinterpret small areas of agreement:

First I asked him how he felt about being removed from his advisory position with Bush after having the audacity to predict that the war in Iraq would cost the United States at least $200 billion. This week, of course, we heard that the new estimates have it that the war will cost $2.4 trillion.

Lindsey shoved right past the question and said that it was a war that the United States must win because the security of the country and the world depended on it. He pointed out that Franklin Roosevelt had spent 150 percent of U.S. GDP on World War II. I jumped in rather bravely and asked, "Does that mean that the U.S. is prepared to spend $15 trillion on this war?" Lindsey thought about it for two seconds and said that 150 percent of GDP was more like $22 trillion, and if that was what was required, so be it.

At that moment I felt like Alice in Wonderland shortly after she had taken the red pill. I was incredulous.

I can feel a major re-gloss of that great old American tango coming on.

I'm just an Average American. I worked hard and saved a bit. Mostly in CD's, nothing fancy like gold or Euros. What is going to happen to my savings? This is America, my savings should be safe in American dollars. For an Average American, I shouldn't have to 'invest' in another country. This is my country, I want to believe that my money will be safe in American dollars. Something is terribly wrong.

I read that cheney converted his portfolio to euros a couple of months ago....

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