Sat Feb 23rd, 2008 at 05:31:05 PM EST
| Hmmm, maybe that's me, second from the left|
... you know if it was free coffee and donuts, I'm there
Yeah, I'm looking at you, Mr/Mdm European.
My country's financial system is going to go through the wringer over the next two years at a minimum ... and much longer unless the initial reaction is constructive. Bear in mind the "lost decade" in Japan in the 90's after their bubble burst ... and while it was a quite impressive bubble, the Japanese financial system was nowhere near as fragile then as the US financial system is now.
So, OK, those running things here have screwed the pooch.
My question is, what are y'all going to do about it?
| Figure 1: Japan's Lost Decade|
Now, it occurs that one thing y'all could do is to reach some kind of accommodation with China, where they agree to shift their "hidden basket" peg from dollars to euros, which would mean that in defending the peg, they would start to accumulate far more Euro assets than Dollar assets.
And of course, the Chinese defending their hidden basket peg, which is primarily focused on the dollar at the moment, is one of the primary things propping the US dollar up, so that if y'all reach some form of accommodation with the Chinese, we here in the US will find out that we aint seen nothing yet in terms of how low the dollar can go.
Which means that this would be a terrific time for someone living on next to nothing to start looking for how to buy dollar denominated Euro call options, since dollar denominated savings along the lines of a hundred or two a month are simply going to be wiped out in the series of inflationary spikes coming up for the US in the decade ahead.
Also, if there is any prospect of that coming off, that improves the prospects of the Chinese keeping their headlong rush to growth going for another five year spell, staving off the political catastrophe that will strike if they get stuck in employment growth rates of 5% a year or less, at least until they have cleared the demographic hurdle created by Mao's insane "people are wealth" policies of the 1950's.
And if China keeps growing over the medium term, that means that dollar denominated call options on Australian dollars are also a good thing to think about ... especially since in an age of Peak Oil, Australia has substantial untapped natural gas reserves.
So, that's why I am asking.
If it seems likely that y'all might reach an accommodation with the Chinese and cut the US loose to fend for itself ... could y'all give me some advance warning?