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basant
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   Posted: 17/May/2011 at 8:11am |
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Sometime over the next decade the US dollar is more likely to collapse like what Silver rallied in the recent past. With monetary measures the FED can only defer the catastrophy not avoid it.
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ramsey123
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Posted: 17/May/2011 at 9:56am |
Even at current interest rates of only 3% odd in the US, the interest expense for the US Govt comes to $414 billion. This means that roughly, if they ever let interest rates get above 9-10%, the govt will "default" and go bankrupt.
If they let interest rates continue the way they are, then we're already seeing what happens. In the future, this will lead to dollar destruction.
Either way...Bernanke and the dollar are damned. Not a good situation to be in.
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FutureBull
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Posted: 17/May/2011 at 10:01am |
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I am just worried about IT and outsourcing sector which will face inverted situation. wages in US will look cheaper
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‘The market always does what it’s supposed to — BUT NEVER WHEN’.
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basant
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Posted: 17/May/2011 at 10:22am |
Originally posted by ramsey123
Even at current interest rates of only 3% odd in the US, the interest expense for the US Govt comes to $414 billion. This means that roughly, if they ever let interest rates get above 9-10%, the govt will "default" and go bankrupt.
If they let interest rates continue the way they are, then we're already seeing what happens. In the future, this will lead to dollar destruction.
Either way...Bernanke and the dollar are damned. Not a good situation to be in. |
9% for a defaulting currency is too low but can it get there if it does there will be several bankruptcies in the world and a repeat of 2008 in a more deadly and sinister format.
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Kautilya
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Posted: 17/May/2011 at 10:47am |
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I am no expert to talk about macro economics, but I do not think the US economy is going to collapse. China, Japan and other developing countries hold a major portion of the US debt. If the USD has to go down then these nations have to come out and sell them. Clearly we do not have a market that can absorb all those dollars and that should drive down the dollar. This is the scenario that is played down and I think it won't happen because it is going to harm China and Japan more than the US. Why would China do something that would erode the value of something that forms a major portion of its portfolio? What is more likely to happen is that US and China would continue to be in this stalemate, however the ability of the US to influence other countries politically and economically will come down over a period of time.
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My indecision is final.
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basant
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Posted: 17/May/2011 at 10:52am |
Sounds logical let's see how long market forces are kept away from this.
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ramsey123
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Posted: 17/May/2011 at 11:29am |
Originally posted by basant
9% for a defaulting currency is too low but can it get there
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Actually, I recalculated after posting and it comes to around 11%. The real problem for them is that they considered their social security payroll tax as baap ka maal. This is close to $940 bn. If you take that out of the equation then their real income in 2010 is $1.44 trillion. So using the $414 bn in interest expenses, the approx rate at which the govt would default is around 11%.
I don't know whether to feel sorry or not for their taxpayers. In India, we've lived without social security but their older population is quite dependent on that. It's more like they've lived in luxury till now and will have to learn to live without it now.
Originally posted by basant
if it does there will be several bankruptcies in the world and a repeat of 2008 in a more deadly and sinister format. |
Totally agree. That will be the mother of all events, really. I don't need to elaborate on the European debt situation. It will just be one pop sound after another.
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shivkumar
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Posted: 18/May/2011 at 12:02pm |
Originally posted by ramsey123
So using the $414 bn in interest expenses, the approx rate at which the govt would default is around 11%. |
There is a way for governments to mop up the deficit by taxation: it is called inflation.
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