i don't consider the USD a store of wealth - i see it becoming an erosion of wealth.
the problem i see with credit contraction is people WANTING lower LVRs and paying down debt sooner. less debt secured = less money to lend.
How could you be bullish
- Thread starter Sunfish
- Start date
i don't consider the USD a store of wealth - i see it becoming an erosion of wealth.
the problem i see with credit contraction is people WANTING lower LVRs and paying down debt sooner. less debt secured = less money to lend.
check what happened to the aud:usd and US bond yields when the gfc hit. (bond yields are the inverse of bond values).
you didn't say bonds - you said USD - implying cash....?
Thinking of countries as individual households with an annual income (GDP) of 100k then:
- Greek Liabilities to GDP ratio at 800% is like having a Debt of 800k
- EU Liabilities to GDP ratio at 470% is like having a Debt of 470k
- US Liabilities to GDP ratio at 500% is like having a Debt of 500k
Many Australian First Home Buyers have this sort of Debt to Income ratio. Many of them has no asset backing (ie. High LVR) nor the ability to create extra money out of thin air. Yet they still chug along.
This sort of ratio is bad for asset poor people, but not for the asset rich.
Many of them would sleep very, very well at night.
originally I said USD denominated assets.
US bonds (and I should say notes and bills cos you want to retain liquidity) are as good as cash, and better. why?
when the next financial crisis hits, you will simultaneously get the :
- flight to USD advantage
- flee the AUD advantage
- flight to safe US asset advantage (bond values go up)
- the bond yield, though smallish.
am out for the rest of the arvo.
Not quite correct. You are comparing govt debt with national GDP. For a fair comparison along these lines, you need to compare Greek govt debt with Greek govt tax income.
I haven't done the research to work out what Greek govt tax income is, but I bet it's a fair bit less than Greek GDP.
As an example, in 2008 Australia's GDP was around $1 trillion USD. At the time govt annual tax income was sitting at around $300bn AUD (can't be bothered finding the exact number). A fairly significant difference...
At the time, the Australian govt had no debt of course...
I'd agree about USD if things were as they were but I don't think they are.
Next GFC may actually be caused by US-China currency issues and there is enough chatter about the China flight from the dollar, inflation and devaluation in the US to seek some other safer asset.
Personally I think physical gold, silver and cf+ property investments are the best for the longterm- though the next GFC will see property drop again as it did last time, so make that a largish CF+ margin.
Again, only my personal view, but the largest danger to my wealth I see is the 'wrong' LVR - allowing for inflation, deflation, sovereign debt crises, and any manner of other crises which might steal the 'V' and leave the 'L'. Now the hard part is deciding the LVR that is safe.
Next GFC may actually be caused by US-China currency issues and there is enough chatter about the China flight from the dollar, inflation and devaluation in the US to seek some other safer asset.
Personally I think physical gold, silver and cf+ property investments are the best for the longterm- though the next GFC will see property drop again as it did last time, so make that a largish CF+ margin.
Again, only my personal view, but the largest danger to my wealth I see is the 'wrong' LVR - allowing for inflation, deflation, sovereign debt crises, and any manner of other crises which might steal the 'V' and leave the 'L'. Now the hard part is deciding the LVR that is safe.
the lowest the banks are applying - so 60%
So much for a decorated Business Spectator - Societe Generale global strategist to come to a conclusion of Default by comparing apples (Liabilities) against oranges (GDP).
Hope he knows how to balance his own cheque book
So much for a decorated Business Spectator - Societe Generale global strategist to come to a conclusion of Default by comparing apples (Liabilities) against oranges (GDP).
Hope he knows how to balance his own cheque book
There is some sense behind it. A govt's ability to raise tax income is ultimately limited to a reasonable proportion of a country's GDP. Get the ratio too high between debt and GDP and govt has nowhere to go to raise more tax income. So it's not a bad measure necessarily for its purpose - it just can't be logically compared to household or company balance sheets / P&Ls in the way that govt debt / govt income ratios can.
The problem with using a govt debt / govt tax income ratio is the economic theory around sovereign debt that says govts theoretically can't go broke - because if they need more money they can always just raise taxes / confiscate assets from the population.
The debt to GDP ratio idea attempts to put some realistic boundaries around govts ability to just raise taxes in the face of high debt which, while different proportions apply for every country, is ultimately limited by GDP in the absence of sovereign actions (like asset confiscation or hyper inflation) that would ultimately result in a downward spiral that's very difficult to get out of.
The theory to judge a country solvency based on tax income and debt seems to evolve around the fundamental assumption that Net Income = Wealth. Too much debt will lead to negative Income, therefore, is bad.
This makes sense from the poor / middle class POV.
Whereas the rich concentrates on high assets and low income, they would use LOE and other strategies to cover spending shortfall.
Being a rich country, the US has plenty aces up their sleeves that the rest of the world envy and feel itchy to pay any price to get their hands on.
BTW, many sales may or may not have to appear on its balance sheet.
Translation?
LOE is selling the family silver (slowly), and that's what the Yanks are doing.
True they have (had?) an awful lot of silver in the sideboard accumulated during the last four decades of the 20 th C when they ruled the world buying up all the best assets, but the worm is turning. The rest of the world is now picking through their assets making offers they can't refuse, or at least they would be if their nations weren't as busted. Aussies and Canuks should be buying America.
This bleeding MUST be arrested or they will die, economically. I see no indication that that is happening.
California is the seventh largest economy in the world (bigger than any of the PIIGS) and the Governator has taken them to the brink of insolvency and I think it's Illinois that is as bad or worse.
Are we watching Mad Max. live?
True they have (had?) an awful lot of silver in the sideboard accumulated during the last four decades of the 20 th C when they ruled the world buying up all the best assets, but the worm is turning. The rest of the world is now picking through their assets making offers they can't refuse, or at least they would be if their nations weren't as busted. Aussies and Canuks should be buying America.
This bleeding MUST be arrested or they will die, economically. I see no indication that that is happening.
California is the seventh largest economy in the world (bigger than any of the PIIGS) and the Governator has taken them to the brink of insolvency and I think it's Illinois that is as bad or worse.
Are we watching Mad Max. live?
Similar threads
