Technology Investment Dot Info

For example, Charles I of England. There is no doubt that cash has been good to hold over the past year, US dollars and yen especially as everyone squared their accounts.

But Morgan Stanley doesn’t believe in deflation, and neither do I.

Although headline prices likely will decline sharply in coming months, underlying inflation over the past three months is elevated at between 2.7% and 3.3%. Surveys of one-year ahead inflation expectations are still over 4%… We think more fiscal stimulus is coming soon, most likely totaling $150-200 billion, and possibly before the turn of the year…

Cash rates around the world (except Iceland) are dropping as authorities cut official rates and flood the system with easy money. Long rates are going to rise so you don’t want to be holding long term bonds, unless you can get 14% for 10 years (in Barclays) like the Gulf SWF’s. Don’t want property for another 3 years, commodities in a recession or equities as earnings fall. But your hard-earned and harder-saved cash is about to compete with Gutenberg.

The US Treasury, between the deficit, the wars, the bailouts and Fannie and Freddie’s losses, will have to raise about $2 trillion next year, or print it.

Rates on six-month bills rose last month to 0.56 percentage point more than the December futures contract for the Federal Reserve’s target rate for overnight loans between banks. The gap was the largest in at least 20 years… Two-year note yields ended last week at 1.57 percent, up from the month’s low of 1.32 percent on Oct. 8, while 10-year notes climbed to 3.97 percent from 3.4 percent… Investors outside the U.S. hold $2.74 trillion of Treasuries, or 52 percent of the $5.22 trillion in marketable debt outstanding…

An often cited Fed research study estimates that long bond rates would be only 1% higher without foreign buying. I think this is grossly under-stated; based on the same discredited models as mortgage modelling - ie. historical variance and a normal distribution. Rates are already climbing and this is going to be a non-linear chain reaction, not balls independently drawn from an urn.

RGE Monitor argues that since there is no one left to borrow from, the Treasury should finance the bailout by printing dollars (specifically redeeming $1trn of Treasury notes with cash).

The Economist also says just print it.

If all else fails, it seems, the one sure way to secure solvency in the private and public sectors is to inflate away debts and buoy up asset prices… rescuing the indebted by hurting those with savings. In essence, if not degree, it is not so different from conventional policy. Interest-rate cuts are a salve for debtors and a penalty on savers. Fiscal-stimulus schemes impose a cost on all taxpayers, even those well placed to endure a downturn. But the cost of a prolonged slump, in terms of idle resources, lost income, decaying skills and an erosion in the trust that keeps civil society going, would be far higher.

Makin at the AEI agrees (pdf). He’s calling for central banks world-wide to buy assets - bonds, MBS, ABS, equities - with printed cash to both buoy asset prices (in nominal terms at least) and boost liquidity. Makin on AIG:

AIG turned out to be a front for aggressive and highly leveraged speculation in derivatives products…

Questions are being asked about where the AIG $143bn has gone… CDS settlements? Certainly much has gone on collateral calls demanded by firms such as Goldmans as the CDS “balance sheet enhancement” instruments AIG wrote moved against them. If AIG had gone Chapter 11 these counterparties would have been left high and dry. AIG owed Goldmans $20bn alone.