I'd like to hear mcgowanmc's response.

My thought is that what he means is bond prices will drop a lot and there will be a corresponding rise in interest rates. I don't know whether the 15 day time frame is right, but it is a perilous time right now, and that is the general direction things are moving. As there are more and more defaults, this is the direction one would expect bond markets to move.

If bond prices drop a lot and there is a corresponding rise in interest rates, the lack of credit we have been seeing recently in bank borrowing and commercial paper will spread to the rest of the debt market--namely bonds. It will make it very difficult for businesses to finance anything. Companies (and municipalities and churches) that thought they could issue new bonds to pay off old ones coming due will find this impossible to do, without raising their financing costs to exorbitant levels. This could result in more bankruptcies, and more defaults on loans, starting the cycle over again.

These bonds are held by many organizations, mostly not banks (although banks may hold some of the bonds), so it will be difficult for the infusion of cash into the banks to have much effect in stopping the cycle. To the extent banks hold the bonds, this will bring down their equity, causing more banks to fail. The drop in bond values will eventually hit other holders of bonds, including insurance companies, pension funds, causing them to have financial problems as well.

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm

The Baltic Dry represents shipping worldwide.

that's a picture of cardiac arrest.

Any bulk commodity, think BHP, Rio Tinto, Vale, et al.

By Ambrose Evans-Pritchard
Last Updated: 11:27AM BST 14 Oct 2008

Nuclear-armed Pakistan is bleeding foreign reserves at an alarming rate leading to fears that it could default on its loans.

There are mounting fears that Ukraine, Kazakhstan, and Argentina could all now slide into a downward spiral towards bankruptcy, while western banks exposed to property bubble across Eastern Europe have seen their share price crushed.

The 10 year bond yield is rising with every move by the sovereign.

The last thing that "Main St" needs.

When no one wants any more US bonds, the US will have to default.
Then price won't matter. The Federal reserve note of Ben Franklin then becomes the US Gov't "bond".

Because having the sovereign inject "unlimited dollars" into the system
is mathematically impossible.

The attempt will kill it.

The flywheel turning at enormous rpm will cause internal magnetism and stresses that would cause a solid block of metal to explode.

Do we have massive hyper inflation or massive deflation.

http://www.physicsforums.com/archive/index.php/t-238379.html

Like trying to get too much energy, too fast out of a spinning flywheel,
the flywheel will explode.
"A flywheel will only store energy; not 'generate' it. As all good physics pupils know, energy cannot be created.

You could create such a device, but it would be an incredible feat in engineering; and I'm not quite sure what the point would be. Its large mass would (depending on speed) hold a large amount of energy; but remember; the amount of energy you can get from it will always be a bit less than the amount you put in to get it spinning in the first place."

"TVP45
Jun2-08, 06:50 PM
At that radius, any known material would explode by the time you got up to a decent speed."

"The flywheel, once in motion, can only store the energy which you put into it. In otherwords, it is moving very fast and has a massive amount of energy BECAUSE you put it there. The wheel won't turn if no force is applied -- once applied, it now has EXACTLY the amount of energy you just applied. When you "extract energy" from it, you're simply taking back the energy you put there in the first place (not to mention you just lost some in the form of heat, so actually you won't even get that back!)

Massive Hyper inflation and massive deflation. It looks to me like
the sovereign is trying to balance the two against each other.

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson, 1791

We've seen deflation so far in the US recently. IMO the euro is more prone to hyperinflation because the European banks are more leveraged than their US counterparts. As was the case in Iceland, large European banks have assets several times their host countries' GDPs. The recent European bailout pledge amounts to GDP ratios are a lot higher than the US bailout to GDP ratio.

Hmm US wages are a multiple of Chinese wages unless China allows much stronger wage growth US wages are not going anywhere.

Also of course you have completely forgot about oil monetary inflation in a peak oil environment can and will be reflected in the price of oil putting a huge damper or the real economy and leading to even more debt defaults.

Salaries in many parts of the US would have to double to even match todays housing prices much less inflationary induced price increases. Rents in most bubble areas are 50% of the mortgage on a equivalent house and falling. The supply of houses that don't cash flow as rentals is huge. You would somehow have to eliminate this imbalance first to even begin to see rents start increasing.

Inflation like your thinking is not gonna happen all this money thats being poured into the system will disappear into writing off defaulted debt and continue to do so for the foreseeable future. Peak oil ensures that if any real monetary inflation occurs it will just result in higher oil prices and higher overall commodities prices.

If and when wages double to handle the current inflated housing prices then we can talk about a wage/price spiral.

The ability for the American worker to demand higher wages right now is zero.

I know that everyone loves the concept of hyperinflation any day now but the reality is that with peak oil we simply can't inflate our fiat currencies since at the end of the day they really are not fiat but tied to economic growth without growth you cannot inflate. No one can pay off old debts much less new debts. Also in a inflationary environment interest rates increase given the current debt load rising interest rates simply trigger more defaults and more risk.

Government printing presses or real monetary inflation only work well for isolated economies sure once the American economy becomes isolated we might inflate but when your global like we are today you get deflation and depression just like what happened the last time the global economy collapsed.

Sometime during the first half of the year a lot of people started to think 'this is it' when everything seemed to be going through the roof -but look what happened: demand got killed (along with the economy) and we see a major slump in commodities.

Now I've been saying for a while that commodities (inc. oil or possibly driven up by oil becoming scarcer) will increase but having seen the up-up-up-down of the last few years I'm not so sure...

So my question would be -how can we be sure that we are in for a bout of Inflation that will last and not get 'cut in the bud' by a recession/depressionary cycle?

-In your example you could find yourself stuck on a 10 year 6.5% fixed while trackers are humming along at Base Rate of 2% (in response to the depression caused by high oil prices perhaps) + 0.5% = 2.5% ... You'd be feeling pretty silly then wouldn't you?

My mortage buddies are telling me that trackers are currently some of the best deals and if we are going to get rate cuts things will only improve.

Nick.

"Rally did not last very long indeed."

Did you really think after the greatest increase in one day ever, there would not be profit taking? Starting from yesterday was one data point; you are making a prediction from one data point?

Here is my prediction based on the same information. The market may be heading for an upturn; than again, it may have just started on a new downward trend. Some think we are due a more or less sideways movement, however.

A half trillion? Nah. He needed a compliant Congress to get his mitts on that kind of money.

Yes-Denninger was commenting on this. Supposedly the law was passed so the sharpies like Paulson wouldn't suffer any undue hardship through their selfless sacrifice on behalf of the sheeple. I beleive the amount was 500 million.

Doesn't even have to be the same cat.

The problem is systemic and dollarwise quite massive. If all the fails in the system were forced to become valid, it's estimated most hedge funds would fail. Probably more than $1 Trillion. The cost to the country is even higher--priceless, some might say. Here are links to the most recent Mitchell Reports I find more important than others,
http://www.deepcapture.com/the-naked-short-selling-that-toppled-wall-str...
http://www.deepcapture.com/the-week-the-world-said-naked-short-selling/
BloombergTV story alledges $6 Billion in fails occur daily, http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/...
Slideshows detailing the problem, http://thesanitycheck.com/Slideshows/tabid/62/Default.aspx
Getting Started page, http://thesanitycheck.com/GettingStarted/tabid/73/Default.aspx
RegSHO page http://www.nasdaqtrader.com/Trader.aspx?id=RegSHOThreshold

There's a lot more data, scholarly essays, media reports, blogs, etc., that I might have included.

In 2005, my group NCANS bought a full page ad in the WaPost for the purpose of illuminating the problem as traditional methods and media had failed. That's right, in 2005 we were begging the government to do its job, which would have prevented much of the carnage created by the hedge funds's actions. At least two dozen people--likely many more--would be alive today if the SEC had enforced the law.

Until now, few bothered to listen when we described this problem. Sort of like the reception given people trying to explain Peak Oil. The consequences of both are now much clearer, and people are finally starting to listen and show an interest.