What might happen

[cottonpicken]

Lots of chatter and theories on where things are headed.

There is an imf paper floating around about how to deal with the crisis and it makes alot of scary sense.

This strengthens Errol's position over mine.

The plan may be to freeze up the soverign bond market and to legthen the maturities out to the 20-30 year time frame and not allow them to be redeemed(as in sell to get all your cash back and take the yeild payout for the duration)

Basically,mutual funds,pension funds,life insurance,private,etc,etc.

What makes sense is they cant allow a bond sell off nor yields to rise.

A sell off without yields rising would mean central banks would have to gobble them all up,pay out the cash and catastophic inflation.The bond market is like 3 times the size of the stock market,alot of capital to unleash,unsterilized.

Let the market take over and yields rise,catastrophic deflation,broke governments,broke banks,broke economies.

The derivatives would not be trigger because a no default would be ruled.

My ira in the us is evidence of this.

The dow at 17,000 is evidence.

On going deficit financing could continue by forced savings in the different plans.

Lots of questions,like the global currency system,but if everyone resets at the same time would anything change?

For the conspiracy folks i could show you a video of lagarde that would make your head spin,when the most powerful woman in the world starts talking non sense,alls you think is wtf......?

[errolanderson]

cotton . . . with the Dow now 17K, central bankers ie: Yellen must be getting concerned of the asset bubble the Fed has created without solid underlying fundamentals (IMO). And the way to get this bubble under control is to increase rates which to me will be highly detrimental to both the U.S. and global markets.

Carney continues to bang the drum of raising rates in England soon. If he does, it will be about 1/8th% which may rumble around the world of equity markets like it was an 8% hike.

One thing I like about Yellen is she gets it; the U.S. is in a whole lot of financial trouble. And she has put her dovish ways back into the glove box as they are losing their punch.

To me, QE may look like a colossal failure in history. Time will tell . . . It's now 'rock or a hard spot time' now.

The poison pill of deflation and a changing of wealth is the only way out. Kicking the can just made this problem worse (IMO). Now the Fed has to get out of the money printing business. The Fed balance sheet is now larger than the entire U.S. GDP . . . total craziness (IMO).

Personally remain a believer that it is deflation or bust. The EU has been in-deflation already more than year . . . this will be a multi-year battle as controlling deflation is a whole lot harder than controlling inflation.

In a deflationary world, the central banker has far fewer strings to pull.

[farmaholic]

I don't expect a reply to this comment but I have no idea what might happen....this is way beyond my understanding. My question would be what does a farm business owner or an ordinary citizen do to prepare for the unknown. Seems there's no concensus as to how this will unfold anyway.

[MBgrower]

Keep bidding 600k on a home in Regina.

[Rareearth]

A really tough question, timing is everything.

Errol if the USA is increasing the money supply through QE, and you are thinking deflation where prices for goods cost less money, isn't that inflationary?

First deflation then inflation?

[ado089]

People need to understand that with a fractional reserve system the money supply the government controls is very small in relation to the overall supply. If this happens it will be as sharp and brisk as the 09 crash. Cash will be king and having good access to credit established will be a bonus.

[errolanderson]

Rareearth . . . please take as an opinion (and a possible bone-headed one at that), but with the U.S. flooding the market with Bernanke-bucks, this has sponsored the flow of funds into the stock market without generating what was needed . . . inflation and real growth. Inflation is needed to offer the central banks the ability to raise rates. That ain't happening. Precious metals are proof-in-the-pudding.

To me, this is the failure of the Fed policy. In the meantime, they have generated a serious bubble risk in the equity world. But maybe the Dow heads for 18K or 20K, as investors take higher and higher risks for yield. But that doesn't change the inherit risk and debt issues that overhang these markets.

The U.S. labour participation rate is just 63%,the lowest since 1978, so the unemployment rate of just 6.1% is meaningless (IMO).

My fat opinion is that deflationary risks will be the next concern which may take several years to contain, then inflation re-appears.

A lot of real smart people will disagree with these comments . . .

[macdon02]

I know nothing, Im a dummy but I dont think there is any way that governments will allow things to deflate as this cuts into their budget, if we deflate then taxes go up, stifling growth. We inflate they deliver more stimulus. They are stuck and only worried about re-election. 9.9 times out of 10 follow the money. There isnt a moral bone in a politicians body, worldwide. If they cant promise more they dont get re-elected. I am cynical take it for what its worth

[mbdog]

US government rarely loses, and inspite of the rhetoric/soap opera playing out in the media, I believe behind the scenes that everything is going as per plan. Some of the smartest/competetive/agressive minds on the planet behind the scenes...not all greedy and stupid. I'm in the managed deflation thought camp, especially in housing and land prices, but just my opinion. "Stuff" just can't go up forever.

[bucket]

But what happens when as others have said land is the new gold.

The only money you can make on gold is the increase in the value and you have to sell that ounce to make it.

If you own land, even overpriced, the rent or farming it should give you a return. Cash renting for the owner is better than bank rate. Owning it and doing the farming is a different mindset.

If mother nature cooperates its good business for both the landlord and the farmer and the owner/operator. This year not so good for the o/o or the renter. But still a good return for the landlord.

My goal is to become a landlord.

[ajl]

Land will not be the new gold because the only way you can get a return is to sell produce but produce out in the middle of nowhere is not worth anything. ie wheat in the middle of SK. After a while stupid operators figure out they are paying to work and the landlords get the land back which will happen this winter. The trouble with the inflation/deflation argument is that we currently have public sector inflation mixed with private sector deflation which is producing unclear signals. Education costs are going higher while commodity prices are coming down is evidence of this.

[Rareearth]

If there's more money in the system, people have more money and they will spend it, no one saves any more, - it's credit. People,manufactures, service providers, every one wants more at what ever cost. Just trying to look at every thing as a whole, not the various asset classes. Interest rates cannot rise, or the usa debt payments go up, why pay more, if you don't have to, and can't repay back in the first place.

When this bubble breaks, it will will be fast and destructive.

Land, is interesting. Two types of buyers, real farmers and investors. Two types or motives for ownership, farmers return on investment based on productivity. Investors is land as a store of value, (ROI, somewhat important) there is way more investor money and willingness to buy land than what farmers have. Investors will average down if and buy more if the markets continue to look risky. Land prices depend on outside markets, as well as production and commodity economics. land seems over priced, for production economics, are farmers also buying as a store of wealth?

[bucket]

I think investors have influence with governments.

They are probably trying to get land purchase principal as a tax deduction and pick up the revenue as a capital gains tax when sold. If land values go down use it as a loss. Win win for the investor if happens because he makes a return as he owns the land.

So buy land write it off, make money during ownership, sell at gain pay some tax, sell at a loss write it off.

[ado089]

Harry Dent Jr is worth taking a look at when having the inflation / deflation debate. He has a pretty good track record of using cycles and demographic to pull together an economic forecast. That said all the stimulus since 2009 has messed that up a bit.

[cottonpicken]

Its the debt and the entitlements.

There is no political way out of this.

Look what the people of ontario just voted themselves.

They cant print their own money,their provincial bond yields will go through the roof as their debt rating tanks,i expect some clandestine organization will pick up the slack.

Austerity will come,the market will force it but it will be a whole lot worse than all the steps we should have been taking ten years ago.