| | My pleasure. Another thought on Pete Najarian's comment. Pete Najarian "totally disagreed" that there will be a crash worse than 2008 (due to money supply inflation). But he did agree that "it is true that inflating these bonds as much as they have, the people that are the last ones stuck when that music stops, they will hurt a lot when that happens."
My thought: What does he think will happen when... "they will hurt a lot"? Who is "they"? For the most part, I think it is the banks and sheepish retirees. The retirees and the banks all invest their livelihood on what Fidelity recommends "Government bonds are the safest investment!" Not only that, but the banks all have a huge collection of 30 year mortgages. The adjustable rate mortgages will all default. The fixed rate ones will be a massive loss in purchasing power for the banks. At a 15% interest rate, the Fed will not even be able to pay off the debt with tax inflows. Which means that the Fed will either print a lot of USD, or massively reduce spending to balance the budget. Either way, its the end of the years of trade deficit we've had with China (they are not going to want USD), which means prices are going to go through the roof.
What kind of recession does Pete Najarian think will happen when this occurs?
The solvent (non inflationary) route: The Fed currently spends 42% of GDP. It would have to drop to maybe 15% of GDP to become solvent. This would cause a significant proportion of the US population would no longer have work or federal aid, causing massive jolting distress. Productive people would soon be able to rebuild prosperity, now that the free market is choosing winners and losers instead of the government.
The inflationary (default) route: Foreign countries such as China would no longer loan to the Fed (like the US stopped loaning to Germany in 1929 before WWII). Foreign countries like China will no longer want to trade goods to us for USD. Banks will lose a significant portion of their purchasing power being stuck with 30 year loan contracts. Prices will go up faster than wages, and everyone's standard of living will go down, causing massive building distress. With rewards being independent of the free market's desires, who knows when it would be worthwhile for productive people to work again?
There is simply no other option at this point. Either route is going to be worse than the dotcom bubble and the housing bubble crashes. We are talking about a collapse of the dollar or a cold turkey quit of the welfare!
(Edited by Dean Michael Gores on 4/13, 9:24pm)
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