The time bomb is ticking louder...

Referenced from the following two articles:

China's M2 Growth accelerates
China is losing it's taste for US Debt

Basically what is going on is that China is now starting to loosen up bank reserve requirements so they can easily lend money to other people. This ends up the increase in the M2 money supply in China. This is somewhat an indirect way if bringing up inflation. Now as you know how a communist government operates, what the Big Daddy Panda Bear says goes.

On top of this, China is losing it's taste for US Treasury bonds as it becomes more obvious that they are not buying them. Using the simple law of supply and demand, there will be more supply which will end up jacking up the treasury bond rates at the cost of the "taxpayer". All the US government will eventually do is print more money so it will not default on the treasury bonds it issues. That's probably the only reason why it "technically" has the AAA rating.

Now what I think is going to happen is that the economy will eventually recover in the short time being (about the next 2-5 years), and while the good news is spread, people are borrowing money from the money tree, people start flipping houses, banks become "forced" to lend to sub-prime lenders with prime rates, money becomes unusually cheap (that's already happened) and the shoe-shine boy starts to run his own hedge fund.


During all the next round of "good times" Chinese (and Japanese) will quietly dump their treasury bonds and Americans will buy them because they are paying out 15% or more because no one wants a subprime bond. And then some dumbass commentator will say "Deficits Dont Matter" while holding a 20 Trillion debt load along with a 40 Trillion dollar unfunded "promise". The only option is to kill more trees to fire up the printing press. You will see lots of government sponsored commercials that will promote buying bonds because it is the "American" thing to do.

Sooner or later the bond bubble will eventually bust, China and Japan will be out of it and guess who is going to be left holding the bag?

The Fed is determined to fight deflation

Wow... after all these trees getting killing and reports are emerging out as deflation is our economic issue now.

Now does this make any sense to you? If the government is pumping TRILLIONS of dollars into the market and expects the foreigners to sop up additional American debt. As I mentioned before, China is dumping over 600 Billion into their own infrastructure and President Obama is trumping China with 700 Billion into their own infrastructure.

My bet is on GOLD. As I tell my buddies that if the government gets tight about the money supply (which they wont) I am totally screwed because it will bring the price of gold down. On top of this, it actually may bring deflation back into the game because no credit would revolve around the market, and our debts would cost more so the government would not want that.

At least the bright side of a devalued currency is that it would not provide as much incentive to ship our jobs overseas (and I am betting my ass that Obama would push to get our currency devalued).

Here is an interesting video that I stumbled on to...