Tuesday, December 23, 2008

The Debts of the Spenders: Obama's Choices Pt 2

I am not dismissive of the inflation side here. What Bernanke and Paulson are trying to do is "controlled inflation", e.g. off balance sheet currency debasement. This has NEVER been done before in history. NEVER.

They are shoveling all the private sector junk onto the govt's balance sheet and then pushing it onto foreigners. That's why the conversion thesis remains 100% reliant on net foreign creditors like China and Japan continual purchase of Treasuries to keep monetary inflation bottled up behind institutional walls.

Bernanke and Paulson then think they will be able to "dole" or distribute the inflationary money supply through select govt relief programs - aka consumer stimulus, Detroit stimulus, commercial real estate (CRE ) stimulus, etc.

Whether or not their theory succeeds in the longer term is another issue altogether. However at the moment all the central banks in the world are cooperating w/the US.

As for inflation, it will first make its way known through depressed commodity supplies...namely food and energy (mostly oil).

Non-renewable commodities like oil are at depletion levels. If you believe in peak oil (as I do), then you know that when the crunch comes it will be violent and quick. Any type of accord that the US forges w/foreign creditors could collapse in the face of resource wars.

At this point, the US creditors are simply waiting for Bush to expire so they can negotiate w/the Obama team. The US will likely have to surrender some sort of sovereignty rights that it took for granted in the past. Maybe rights for foreigners to own land, invest in "strategic" businesses, etc. Similar to what the US banksters did when they journeyed to Japan in the 1990s to force open their corporate markets.

There will be nationalist backlashes but I believe Obama is a practical man and will compromise w/our foreign creditors. He has to. There is really no other alternative (unless he triggers a Treasury default and no one wants that).


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