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U.S. Consumer Booms Inevitable Bust

Economics / US Economy Jan 13, 2009 - 09:24 AM GMT

By: Oxbury_Research

Economics

Best Financial Markets Analysis ArticleA Nation Named Desire - Classic film buffs will be familiar with the 1951 film – A Streetcar Named Desire – which starred Marlon Brando and Vivian Leigh. My favorite scene in the film involves Blanche DuBois (Vivian Leigh) and Stanley Kowalski (Marlon Brando).

Blanche DuBois is a fallen woman – her family fortune and estate are gone. In an absolutely classic line, Blanche says to Stanley Kowalski - “I have always depended on the kindness of strangers”.


I can think of no better analogy for the current condition of the United States than Blanche Dubois. Here stands the United States, her vast fortunes have been frittered away by a generation of people who followed a doomed economic model. An economy based mainly on consumption simply does not produce any real long-term wealth, only long-term debts.

Now the United States is reduced to, like Blanche DuBois, relying on the kindness of strangers. The US is nearly totally reliant on strangers (overseas investors) to buy trillions of dollars of US Treasury paper just to keep the lights on in the country. Yet most Americans don't even realize this.

Muddled Thinking from Wall Street

The ignorance of some Americans doesn't bother me nearly as much as the sheer arrogance and sense of entitlement of some people from Wall Street. I came across an article this week written by someone from the Point and Profit stock trading service.

In the article, he stated that foreign investors would gladly buy up any amount, no matter how large, of Treasuries the US would sell. Why? Because they “have” to do it to sustain their economies. I wonder if he has ever left the cozy confines of Manhattan?

Here is a direct quote - “They (meaning foreigners) have nothing , they build nothing , they sell nothing without OUR demand”. So he is basically saying that foreigners are nothing without the United States. The whole purpose in life of everyone else on the globe is to merely serve the needs of Americans and to make their Wall Street masters filthy rich.

I think I will send a copy of that article to every overseas institutional fund manager and central banker. I wonder what the arrogant author of that article would think when all of the “worthless, nothing ” people around the globe do absolutely nothing at upcoming Treasury auctions?

Many of these countries that are filled with these “worthless, nothing ” people such as China actually have plenty of money unlike the United States which, like Blanche DuBois, is reduced to relying on the “kindness of strangers”.

More Muddled Wall Street Thinking

I also came across a critical comment about an article written by my brilliant colleague at Bourbon & Bayonets, Nicholas Jones. In their comment, the person said that Nick's analysis on the Fed's money creation was worthless because Nick was ignoring the trillions of dollars lost by the banks.

That person went on to say that it didn't matter that the Fed had created all of this funny money. After all, the banks weren't lending any of it – a liquidity trap. Obviously, this person has swallowed the Wall Street deflation fairy tale hook, line and sinker.

This person should try to do something that Wall Street people rarely do – think outside the box. I don't care how many trillions of dollars that the black hole called bank balance sheets has swallowed up. The Federal Reserve can create many more trillions of dollars than were lost in the blink of an eye. The Fed can literally create an infinite supply of funny money if they so wish.

There is also no law that says the Fed has to go through the banks to get the money to the public. They can easily use Ben's famous helicopter. I can picture it now – armies of uniformed government thugs wearing arm bands saying “US Federal Reserve”.

While black helicopters hover overhead, these armies will go into every American community. Street by street and house by house, the Fed armies will go, giving out freshly printed money to one and all. The only catch will be that the funny money they give out will have an expiration date on it. If you don't spend the money within a few weeks, the money will become worthless.

One consolation however - the money will be pleasant to the eye. The new money will come in the color of your choice and will have a picture of your favorite CNBC talking head on the front. On the back, there will be a picture of Ben Bernanke with the slogan In Ben We Trust in bold letters.

So much for Wall Street worries about a liquidity trap and deflation. It is inflation and the rapidly descending value of the US dollar that people should be worried about.

Even More Muddled Thinking

Here is another interesting tidbit I ran across this week. Michael Lewitt of Harch Capital Management said that the last thing Wall Street “investors” are thinking about when purchasing zero percent Treasuries is reselling them at a profit. Mr. Lewitt said that, in most cases, the Wall Street “investors” are expecting to resell the zero percent Treasuries at a loss.

I would argue that these Wall Street “investors” are NOT thinking at all. Why would anyone in their right mind deliberately make an investment into a security where you know you are guaranteed a loss? I thought the whole idea was to make money.

Oops – I forgot! The whole idea is to make money for Wall Street, not for their clients. These Wall Street “geniuses” are paid exorbitant fees and make millions of dollars a year in salary and bonuses for this type of investing acumen? Incredible!

Why would any individual investor give his or her hard-earned money to these Wall Street money managers? To lock in a guaranteed loss? A better solution for clients of Wall Street firms would be to put their money under the mattress. I think that is what Blanche DuBois would do.

By Tony D'Altorio

Analyst, Oxbury Research

Tony worked for more than 20 years in the investment business. Most of those years were spent with Charles Schwab & Co., both as a broker and as a trading supervisor. As a supervisor, he oversaw, at times, dozens of employees. Tony was trading supervisor during the great crash of 1987 and was responsible for millions of dollars of customers' orders.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2009 Copyright Nick Thomas / Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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