Karl,
Did you ever think this IS the solution? I am an equilibriumist (if that is even a word). I have said before that I left the U.S. for Brasil. I have employees here that I significantly overpay and still work for nothing relative an apprentice in the U.S.
Did you ever think that maybe devaluing the dollar (hopefully slowly) is the solution. The only way to bring/keep jobs in the U.S.? That then everyone will keep their 36k a year jobs and that Americans are now so dumb and fat that they might not realize the value of that 36k globally. Hell devalue it enough, get raises to 38k a year and tell the sheeple how wonderful things are. That's what I would try to do.

Just sayin....

Typo: even this is a short-term phenomena

Great analogy.

Thank You for spelling This Out so Clearly.

I have been grappling with the Dimensions of FED Monetary Policy and having difficulty in expressing how the Carry Trade and Price Distortions lead Me to consider a rather more pronounced Devaluation is underway than the FED Rate, QE & Other FED Purchases might indicate.

This is a Very Important Ticker in that the Distortions produced by this Dimension of FED Policy have not been scrutinized for ( unintended ?) consequences.

The upcoming dollar carry trade will ensure that no recovery occurs, in fact the too big too fails will profit exceedingly from an anemic dollar and a crippled credit system, as you pointed out Japan is clear evidence. Nice ticker Karl, you are on a roll!

The KISS principle applies.
There are only two ways this works out.

At a minimum double all taxes you currently pay just to maintain interest payments and some semblance of social payments(riot control).

OR

Default on the debt and start over.

Great explanations in that ticker...especially the 'coffin corner' concept.

So, what are the odds that TPTB will take the red pill before we actually reach 'GAME OVER' in this fun little world? Maybe 1 in 5?

if the fed tightens it may force other central banks to also tighten, if their currencies also come under pressure as a reaction, thus you have sort of a tightening death spiral.

this is the real reason why fed tightened during the first great depression.
You can either take it up the ass in the general economy, or the currency, which would take out the government anyways..

Here I was thinking the coffin corner was a punt inside the 5 yard line.

anyone else having problems opening the tickers today?

What no one ever seems to ask is this: why does the Fed (excuse me - I mean the American people) think that it can manage, control & direct the economy? In the entire recorded history of mankind, it has never been done before, so why now? What new insight, technology, political force, etc makes our current situation different?

The answer is that there isn't one - nothing has changed - human nature is still exactly the same as it has always been. We are like schooling fish (actually, we were); as we evolved, this became a herding instinct. Who can account for the billions of individual passions, desires & motivations? No one.

What they (we) are attempting to do is nothing more than (a) study the organic processes which comprise hundreds of years of economic data; (b) emulate them through cheap monetary tricks (QE to keep rates at 0% and fuel a market rally) and media manipulation to improve 'confidence'.

The problem, as Mish and others have pointed out, is that faking it isn't the same as the real thing. The multitude of individual organic processes which coalesce into real economic demand drivers comes from within. In 50-70 years, the next Bernanke-like 'genius' who's an expert on the GDII will finally recognize that no matter how cheap rates are, at some point people are simply tired of partying.

There's a reason the GDI lasted 15 years and it ain't because the Fed didn't "do enough". It takes that long for the generation that caused the initial problems to die off/become irrelevant (ie retire and stop producing/consuming). It takes that long for the younger generation(s) who have no institutional memory of the past to repeat the very same mistakes. It is they who will lust after new products, services, vacations, etc and not only will they willingly spend, but they will DREAM (and maybe even kill for the pleasure) of spending.

That, boys & girls, is why we are ****ed. And the Fed (oops, I mean us) can't do a damn thing about it.

Hubris and politics.

If either our executive branch OR our legislative branch wanted to fix this, they could. The pain would be severe, but not as bad as it will be in six weeks, six months, or six years.

The fact that they don't immediately start taking action to stop the Bezzle can only be attributed to the inversion in their loyalty priority: Self, Party, Country.

This only gets fixed when we put people in office with priorities in the other direction: Country, Party (constituents), Self

OR...

It fixes itself when it blows up in our faces and there's nothing left to fix.

If I read Karl's ticker correctly, the possibility exists that the FX market could forcibly drive the US dollar down, potentially to the point of collapse, by a collective belief in that market that the US dollar will continue to be worth less and less over time, in spite of the removal of US dollars via defaults and foreclosures which appear to be exerting tremendous deflationary pressure on the US dollar?

Quote:

What no one ever seems to ask is this: why does the Fed (excuse me - I mean the American people) think that it can manage, control & direct the economy? In the entire recorded history of mankind, it has never been done before, so why now? What new insight, technology, political force, etc makes our current situation different?

Keynes.

It’s incredible to think how much the public has been lied to over the past 30 years or more. Every time there was an economic difficulty or recession, the Fed would come to the rescue with its low interest rate policy, increased liquidity and the allowance of total debt to increase. We were never told about the damage such a policy does to an economy. The average citizen, myself included, was amazed at the apparent brilliance, indeed, sheer genius of those who control the American economy. Now we are seeing the negative consequences of such a policy.

The future looks frightening.

-------------------------------------------------
A trillion here, a trillion there and pretty soon you're talking about real money

Unlike the carry trade using the the Yen, the USD carry trade is self containing.

The Yen carry trade offset much of their current account surplus and as a result the Yen didn't change in value much. The carry trade was kind of a blessing to Japan in that their central bank didn't have to intervene in the FOREX market as much. I don't see how it contributed to their economic woes. I think it was mostly benign. Maybe I'm missing something. I would like to hear how it adversely effected their economy.

In contrast, the US runs a large current account deficit and the carry trade adds to dollar pressure. Eventually, the dollar will drop to a point where currency risk will outweigh interest rate differentials and the carry trade will stop and probably even reverse itself.

Quote:

That is the current loss is the best and in fact smallest loss

probably the most important single sentence you've ever written. Unfortunately, our leaders aren't listening.

The sad thing is I really think that the Fed and Gov. think they are doing the right thing and are in control. Even if they can see the light at the end of the tunnel and realize it's a train there is little chance they will change course. It would be political suicide to do so. The best they can hope for is a continuing market greenshoots for the next month or two so they can come out and declare that everything is over and they saved the economy. Once they have stated this then they are in the clear and can let the SHTF. As the previous saviors they can come back and say we 'saved it last time' so we are going to do XYZ now and save it again. In doing this my opinion is that we will see a massive dollar value decline as Karl has stated resulting in a hugh price spike on everything we purchase.

Gen, crystal ball question: assuming that no changes occur, what do you see for the value of the dollar domestically?

So what is the debt service level as a % of GDP?
And when does it tip into the abyss?

I'll guess as well that being the world reserve currency gives the US a temporary mulligan or the abyss would have been reached already.

Mark

Delete.

The AP story posted at Yahoo! (http://news.yahoo.com/s/ap/20090925/ap_o....) focuses only on the $53 billion number and does not even mention the bigger story (and $$ numbers) noted at the beginning of the ticker...

Quote:

Classified assets rated 'substandard', 'doubtful', and 'loss,' rose to $447 billion from $163 billion in 2008.

The volume of SNCs rated 'doubtful' and 'loss' in 2009 rose almost 14-fold to $110 billion, while non-accrual loans touched $172 billion, up from $22 billion in 2008.

From Investopedia [http://www.investopedia.com/terms/c/curr....:]

A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.

The drop of the USD in a USD carry trade is a *feature*, not a disadvantage.

Quote:

Eventually, the dollar will drop to a point where currency risk will outweigh interest rate differentials and the carry trade will stop and probably even reverse itself.

Two things:

1) Right now, as much money is being made on the carry trade from the value of the dollar dropping as there is from the interest rate differences.

2) When it reverses itself it's called a "carry trade unwind" and is BRUTAL for the economy of the country who's currency was being shorted.