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Thursday, September 18, 2008

Japan v2.0

Central Banks Offer Extra Funds to Calm Money Markets (Update5): “The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.

The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion “to address the continued elevated pressures in U.S. dollar short-term funding markets.” The Bank of England, the Bank of Canada and the Swiss National Bank also participated.”

Wow. Just amazing. The futures popped early in the morning on the news… then started drifting down again. While still positive, the futures look and feel limp.

Basically this action is like taking the defibrillator to a patient and just ‘giving her’… and declaring that this will ‘heal’ the twitching patient… Unfortunately the patient is long dead, and the twitching will stop when the current from the defibrillator stops.

You can’t bring back the dead with a defibrillator.

You can’t bring back dead banks with more liquidity.

We are heading for Japan v2.0.

Think ZERO percent interest rates and think DEFLATION. Think LOST DECADE. Think DEPRESSION. Now make all that GLOBAL.

That is what we have to look forward to.


Anonymous said...

And a cheery good morning to you too.
Ten years sounds about right.

Lilipop! said...

10 10 wars.

Anonymous said...

So that's a buy?


Anonymous said...

So after all this who is to blame? I know there are many but is there one person or people that got us into this mess?

Anonymous said...

I see the point.

But why cant the US gov just fire up the printing-press?

Noble said...

the fed wants ("is worried about" wink wink) inflation. Anything to avoid zero bound. Cost to nationalize will be 1T - 2T. Some lessons learned from Japan though. Carnage but no lost decade. Lost 2-3 years maybe.

SG said...


What's your take on the argument that the US is more like Argentina than Japan because we are a net debtor (albeit in our own currency), whereas Japan was a net creditor and could fund it's own bailouts?

When petro and sino dollar flows collapse, who will buy our new bond runs?

If we are Argentina 2.0, then don't long bond rates spike and don't we get dollar flight again? Back to commodities maybe? Other currencies (which ones?). Sure the ruined economy kills demand, but that doesn't mean nominal prices in dollars can't be high.

I see you making lots of dollars, but I'm wondering where you see the purchasing power of the dollar going over the next, say, 2 years.

To bottom-line my question, would you buy or short the long bond over teh next 3-6 months?

As always, thanks for your wisdom.

Anonymous said...

Steve's got a good question.
What are the long-money guys thinking? They're usually not far wrong, IMO.

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