Fire Cloud...
An irregular marking on the exterior of Native American pottery: usually resulting from burning fuel coming in direct contact with the vessel during firing

Saturday, 22 September 2007

Globalization Comes Home to Roost

Wake Forest, North Carolina

I spent a couple of hours online ordering used macroeconomics books from this morning at 4am. I picked five cheap ones.

All those hours of graduate courses, so long ago, have slipped away: the ebb and flow of money, tides in the affairs of men and money supply policy. It’s all so vague now, but at least I know what I no longer know and I know what the economists and politicians definitely don’t know.

Canadians are flooding over our border to buy at Target and Wal-Mart. The Irish are lining up for second home condos in New York City. We had an $862 billion dollar balance of trade deficit in 2006. Further severe devaluation of the dollar seems inevitable in view of recent US interest rate cuts and the inevitable rebalancing of r exports and imports. That should shock foreigners with dollar denominated investments into dumping their T-bills and other investments. Japan and China in particular are going to have a tough time continuing to sustain losses in value of in US debt instruments. Japan holds $600 billion of US debt and China has $500 billion of its 1.2 trillion of foreign reserves in US debt instruments.

But wait, won’t all that cause a very sharp rise in US interest rates and inflationary pressures? Then there is the credit tightening caused by the sub-prime debacle and the slowly popping housing bubble. Housing price increases and Ninja mortgages (no income, no job, and no assets) have fueled consumer spending for five years, and what about all those foreign illegal workers in the housing industry? Where will they go?

Oil is at $82 a barrel and no end in sight for rising prices caused by rising demand, shrinking supply and the falling dollar. The past price increase should have already caused a 12% increase in the overall inflation rate (1% for every 15% increase in oil prices), but cheap imports of foreign goods and labor have kept the lid on that so far (especially with the government discounting fuel and food price increases as mere aberrations).

It’s all so complex. We will live in interesting times for the next ten years. I need to go back to the books. Gloom and doom. The end is ‘nigh.

Maybe I’ll buy travelers check denominated in Mexican Pesos and spend them next year on Margaritas in the Pinacate desert in my secret survival cellar, while waiting for the collapse of the international monetary systems and world chaos.

God bless you, Mr. Greenspan.

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