Obama, the debtor summit, and the "flight to quality"
President Obama meets his fellow heads of state today and tomorrow at the G8 -- or as we like to call it, the Global Deadbeat Society.
While most Americans and Europeans are hounded relentlessly by collection agencies if they go even a few weeks past due, and even corporate CEOs have trouble placing new issues, these sovereign governments are relatively immune from the wholesome pressures of reality.
If the leaders want to get some work done, they might talk about liquidating U.S. and E.U. debt, devaluating their currencies against the Chinese Renminbi yuan, and restructuring the global currency cabal that at once incentivizes and enables the world's American-led debt addiction -- what French economist Jacques Rueff called "the exorbitant privilege" of the U.S. dollar's reserve currency role.
But that would be, well, work -- and as experienced negotiators know, most summits are more about announcing or at most perfecting already-agreed-on objectives than they are about tackling difficult issues. Readers who are interested in how the world's ponzi scheme works, and in fixing it, might want to take a look at Damon Vickers's recent book, The Day After the Dollar Crashes, available here.
Still, it may be less satisfying, and less productive, to try to change how these world leaders think than to focus on how to minimize risk and even profit from their follies.
How to do this? Some observers are starting to whisper about a last leg of easing from the U.S. Fed, and one last rollover for America's past-due credit card. Others are getting ready for the U.S. Treasury Meltdown, which indeed, seems bound to happen someday -- but perhaps not as fast as they think.
We're not seeing it yet. Indeed, with U.S. economic sluggishness and concern about Europe's debt in the headlines, markets have made what is sometimes called a "flight to quality" recently. (A truly ironic phrase, if you think about it.)
What we will do at Damon Vickers is watch how all these forces -- the Borrow-holics Anonymous meeting, the Fed, the U.S. debt-ceiling talks, and others -- act and react on one another. All these factors will meet with people's appetite for risk at a single point of supply and demand called "price." When that price breaks out to the down side (sending yields up), we may take action.
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