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User Info 2022: The Year In Review, And Burning Of Bridges; entered at 2022-12-29 15:22:51
Raven
Posts: 17786
Registered: 2017-06-27
Curious Karl as to why anyone could justify a declining dollar after five years.

Deflation always produces a strong currency. It is like he is assuming that we can wash or export inflation again to the developing world. We cannot in the future which makes our dollar strong locally absent any near ZIRP games.

Here is Dent's anti-logic:

"The history is that the dollar will rise in a crisis like this one, as it did in 2008. I see that happening, and then the dollar will fall longer term and Asia will become more dominant. I know its popular to believe that the dollar will lose its value suddenly in a crisis, but 2008 proved otherwise. Its best to invest in the 30-year U.S. Treasury bond, which locks in higher rates before they fall and which is based in the U.S. It is not that the U.S. is in good shape, its just the best house in a bad neighborhood. Note that well see the fall you are talking about over time from around 2025 forward."

"Frankly, I don't think the public is that sophisticated. It doesn't really matter what the Fed's balance sheet is, as it is an artificial entity that creates money out of thin air. We have to work to create GDP. What matters is the Feds impact, and that has been to keep a slowing economy growing for 13 years by printing massive amounts of money that created a massive financial asset bubbleand not CPI inflation as feared, until recently after the overreaction to COVID. Many were worried about inflation from such money printing. But the inflation came mostly in financial assets. It is the collapse of that bubble that the Fed largely created by overstimulating our economy for 13 years, especially after COVID, that will kill the Fed and all central banks, along with their credibility.

The first bubble was more natural, with strong demographic and technology trends boosting spending and productivity. This second bubble, meant to head off the next Great Depression, was 100% artificial, and it will have a bigger collapse than 20002002 or 20072009 in a now demographically weaker economy. The economy will go through a shorter but more-brutal depression as this bubble bursts. Two hundred and fifty trillion dollars to $300 trillion will disappear from a $600-trillion global financial asset bubble that was led by China and the U.S. but occurred everywhere and that included even more money printing by the EU and Japan relative to their economies. China did something worse: They printed condos instead of pure money; now, 22%+ sit empty. That's a deflation crisis all on its own.

When the crash happens and half of the $600 trillion in financial assets suddenly disappears, it will create both deflation and deeper bank failures than a normal recession. Debt and mortgages in particular are how we create the most money out of thin air. The artificial Fed and central bank injections and interest rate reductions encourage and make it easier for such asset bubbles to inflate.

Banks largely lend against financial assets and their cash flow. When both collapse, loans fail, and banks only have about 10% or so reserves for that. That creates major bank failures in addition to high unemployment and business failures. As in 19291933, these financial asset collapses are called depressions (instead of recessions) because of deflation throughout the whole system and because huge amounts of financial assets and future spending power disappear from the system for a long time. While the whole system deflates, the largest impact is when financial assets come back down to fair value. That takes a lot of money out of the system and causes lower spending by consumers and businesses near term, and longer term to a lesser degree. Would you spend less if your net worth suddenly dropped by half or more?

This crash will be global, and it will be the worst since 19291932, but the U.S. will come out as the best house in a very bad neighborhood compared with our biggest competitors: Europe, China, and Japan. Southeast Asia and India will be the biggest winners after the crash, as they have the least debt exposure and will grow the most demographically in the future in Asia, which will be the most-dominant growth area in the next boom and for decades to come. The U.S. will have one last fling of growth with the Millennials into 2037, and then will start looking like Europe and East Asia now do, with much slower long-term growth. Increasingly, the future belongs to the emerging world, most especially the southeastern and southern (India and Pakistan) parts of Asia. North America, Northern Europe, and Australia/New Zealand will be the strongest parts of the developed world in the next global boom from 2025 to 2037. Only "Oz" will continue to grow after that, and only because it will get high levels of immigration from Asia... "

Your thoughts? Thank you.
2022-12-29 15:22:51