On Wed, Sep 17, 2008 at 10:33 AM, Gruss wrote: > Just some random thoughts compiled from various sources including me:
> (1.) The gov't is not putting the liabilities of Fannie and Freddie on > the books officially. Sounds like they expect a private buyer to step in later this year or next year. i'm not an accountant, though. > (2.) Before the end of the year, there is roughly $830 Billion of > "rollover" debt that's coming up for renewal. Since most of it is held > outside of the US, should the debtors NOT decide not to renew the > fallout would be epic! Like I have said before, if you owe the bank a million dollars and can't pay, you are in trouble. If you owe the bank a billion dollars and can't pay, the bank is in trouble. A corollary is that if you owe a series of banks a trillion dollars, the entire banking system is in trouble. Countries that have been funding US debt - notably China - are stuck playing the game, because without financing, the US would end up defaulting (again, I'm not an accountant, if someone can explain how we could avoid default in that situation, please chime in) and the dollar holdings of those countries would be wiped out in a flash. Let's go back to your analogy with China, how we were paying them (by purchasing goods) to build their infrastructure, and they were financing our purchases so they could continue to sell us more stuff, like a giant credit card. If we default on the card, essentially we are pushing all that cost back on them. It is what I call the economic nuclear winter, because a US default would shake the entire world for years. And don't think the Chinese or anyone else who holds all that debt have not considered the conundrum they face. (4.) The dollar has lost about 40% of it's purchasing power in the > past 5 years with China and the Middle East holding about $1.5 > trillion of dollar-denominated US debt. > While there's been no "run", > it's had a slow deflationary effect, but it's also made US labor & > exports cheap. This is exactly what should happen, ultimately - either as slow deflation at home or inflation in places like China. That will even out costs and make the US more competitive, which will encourage people to buy from US producers, which will create inflation, starting the whole cycle all over again. > (5.) The next hit will be to personal credit such as credit cards, car > loans, home equity loans, etc. The spend-thrift consumer will lose > their source of funding and their debt will start defaulting. We'll see. I don't see it yet, although I have noticed an interesting trend. Companies are hitting me up to open lines of credit, buy a car, etc. Probably happening with anyone with a decent income and a good credit score, as the financial firms try to shore up their accounts with high quality debt. On the real estate front, my wife has noticed that lower-market homes (under $400K in San Diego) are being snapped up left and right, and banks are very eager to lend to well-qualified customers who are purchasing homes the banks know they can afford. Again, I see this as banks shoring up their balance sheets by seeking out high quality debt to offset the sub-prime mortgage mess. How much money will people put out there? We'll see. > But also fear. We'll need to run this gauntlet just right while > simultaneously preparing for our unfunded obligations such as SS, > medicare, et al. and then run that gauntlet right. The entitlements mess is still what really, really worries me. As it stands today, if nothing changes, we are going to be completely wiped out as a country by Social Security and Medicare. So the momentum is towards total destruction, and it is going to require great energy to change that momentum and keep us from going over the edge. My fear is that yellow-bellied politicians will take the easy way out and raise taxes to hide the problem as long as possible rather than take the problem head on with a real solution. Raising taxes is not a solution, because eventually, every dollar every person in the country makes would go to these programs, and it still wouldn't pay the bill. The sooner we face up to reality and fix the problem, the better off we will be. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;203748912;27390454;j Archive: http://www.houseoffusion.com/groups/CF-Community/message.cfm/messageid:269795 Subscription: http://www.houseoffusion.com/groups/CF-Community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5
