the RBA and macroprudential policy

[landlubber]

Good question.....

Redom's question is a good one. Thinking about it ....Technically the USA cannot default as long as they can print USD, and bond holders and 'suppliers' (think .... oil e.g.) accept those dollars as payment. The USA is well past the point where they can actually repay their debt as such. Best they can do (as I see it) is they inflate the problem 'away'. Then, will the bond holders accept that inflated paper? It would sure change the world if e.g. Oil suppliers etc insisted payment in gold physical !! Servicing the USA debt must also get more interesting as interest rates return to normal .....whatever normal is these days ..LL

 

[MarkB]

Mark, why do you think the US will default?

Clearly they don't plan to reduce the debt - indeed it doesn't even look like they want to stabilise the debt.

Which means they're pinning their hopes on (essentially) out-growing their debt.

And I am just not that confident they will.

 

[MarkB]

Technically the USA cannot default as long as they can print USD, and bond holders and 'suppliers' (think .... oil e.g.) accept those dollars as payment.

The future of the USD?

 

[landlubber]

I agree .... it's going to get interesting. John Paulson who made billions on the GFC crash even says in the last pages of his book ....it's his next bet and it's the big-one ! LL

 

[Singo]

I agree .... it's going to get interesting. John Paulson who made billions on the GFC crash even says in the last pages of his book ....it's his next bet and it's the big-one ! LL

What will be their solution for such crash? World War 3?

 

[Colin Rice]

What will be their solution for such crash? World War 3?

lets hope not

 

[BayView]

Why oh why would you learn from "other countries" when they screwed up and we didn't? The acid test (GFC in this case) has passed. In terms of our housing/mortgage market we passed with flying colours. LL

I think that to continue watching and learning from others' mistakes - even when not making any of your own - helps you to not make any in the future...to not get complacent.

 

[Redom]

Redom's question is a good one. Thinking about it ....Technically the USA cannot default as long as they can print USD, and bond holders and 'suppliers' (think .... oil e.g.) accept those dollars as payment. The USA is well past the point where they can actually repay their debt as such. Best they can do (as I see it) is they inflate the problem 'away'. Then, will the bond holders accept that inflated paper? It would sure change the world if e.g. Oil suppliers etc insisted payment in gold physical !! Servicing the USA debt must also get more interesting as interest rates return to normal .....whatever normal is these days ..LL

US bonds are the worlds risk free asset. This year (last year?) episode where they came a day away from a 'technical' default, it barely moved.

So cost of borrowing, while increasing, wont jump up ridiculously.

Thanks for those charts MarkB. Not quite sure i'd read that in the same way - 60% gross debt isnt the end of the world, and way way way off the point of economic collapse. By most metrics, its at the higher end of a sustainable level of debt. Of course the debt trajectory also matters bigtime, but they've been on a fiscal consolidation path for a while now and growth is picking up.

Only in Australia do we think having zero debt is a necessary economic achievement.

 

[MarkB]

US bonds are the worlds risk free asset.

Not according to their credit rating.

 

[MarkB]

Fast forward to the day I cark it (and may that day be many many days away) and I would, tbh, be very happy to look back at my life and, with regards to a US Government default, think -

"Well I got THAT wrong..."

But....

I just don't have that much faith in politicians and in political will.

While said politicians saved us last time from the "bad people" in the "big end of town" who force-fed the credit markets in the lead up to the GFC - who is going to save us from them?

Is the Tea Party going to gain control of the Republicans and put the US on a path of fiscal austerity?

Is Ron Paul (or someone who also thinks like an Austrian) going to gain control the purse-strings?

Or will the US finally realise the wars of the 21st century that really matter, are not won on the battlefield but on the balance sheet?

None of these are very likely imo.

So they'll march along - as an economy they will grow and spend - and, at times, this GDP growth might outpace the debt - even for years at a time.

But the Government won't get in the habit of running surpluses.

And their economic forecasts (which they will cling to) will never allow for the negative shocks that invariably happen.

Whether it is the price of oil.

A new futile and unwinnable war.

Another credit boom turning to bust.

Terrible weather events,

etc

So something will throw them off course imo.

The best thing they have going for them - is that they might simply be too big to be allowed to fail.

In which case they will be kissing **** in both Mandarin and Japanese.

 

[Redom]

Not according to their credit rating.

Meaningless.

Look at their price, reputation, etc.

 

[Redom]

That can change over time, but wont happen for a while i dont think...Japanese know how that feels.

 

[Redom]

Fast forward to the day I cark it (and may that day be many many days away) and I would, tbh, be very happy to look back at my life and, with regards to a US Government default, think -

"Well I got THAT wrong..."

But....

I just don't have that much faith in politicians and in political will.

While said politicians saved us last time from the "bad people" in the "big end of town" who force-fed the credit markets in the lead up to the GFC - who is going to save us from them?

Is the Tea Party going to gain control of the Republicans and put the US on a path of fiscal austerity?

Is Ron Paul (or someone who also thinks like an Austian) going to gain control the purse-strings?

Or will the US finally realise the wars of the 21st century that really matter, are not won on the battlefield but on the balance sheet?

None of these are very likely imo.

So they'll march along - as an economy they will grow and spend - and, at times, this GDP growth might outpace the debt - even for years at a time.

But the Government won't get in the habit of running surpluses.

And their economic forecasts (which they will cling to) will never allow for the negative shocks that invariably happen.

Whether it is the price of oil.

A new futile and unwinnable war.

Another credit boom turning to bust.

Terrible weather events,

etc

So something will throw them off course imo.

The best thing they have going for them - is that they might simply be too big to be allowed to fail.

In which case they will be kissing **** in both Mandarin and Japanese.

Hahaha poetic. Well played sir.

Interesting points, all seems plausible.

 

[landlubber]

What will be their solution for such crash? World War 3?

I think you can safely assume, from their track record, when the chips are down USA will use it's military might to defend the greenback and it's (exclusive !!) position as world's reserve currency. They may even "invent" stuff like ...shall we say ....weapons of mass distraction ...to justify their actions. LL

 

[plusnq]

I think you can safely assume, from their track record, when the chips are down USA will use it's military might to defend the greenback and it's (exclusive !!) position as world's reserve currency. They may even "invent" stuff like ...shall we say ....weapons of mass distraction ...to justify their actions. LL

I've got an idea. Let's bomb Iraq again...............it's worked before

Oops.

http://www.news.com.au/world/presid...q-isis-militants/story-fndir2ev-1227018605947

 

[landlubber]

I've got an idea. Let's bomb Iraq again...............it's worked before

Oops.

http://www.news.com.au/world/presid...q-isis-militants/story-fndir2ev-1227018605947

And lots of oil now getting under the control of some very motivated people who don't give a rats about selling it in any hard currency at all .....
http://news.uk.msn.com/world/kurds-take-over-two-iraq-oil-field

That's what got Saddam and Gaddafi into the bad-books !! LL