Off Topic - Does anyone live in Michigan? What R ppl saying about the future of GM?

[gedlee]

The problem from where I sit is the continued position of the unions and the line workers that "Its not me! Its the engineers and the managers who can't design and sell what we make." I have no confidence that the unions and the workers will ever come to grips with the reality, even now with disaster looming. Its almost like - "If I can't have mine then I'll take all the rest of you down with me." And that sounds like the unions.

In Chapter 11, a judge decides and we know what he'd say about a factory worker who makes almost as much as he does.

 

[Patrick Bateman]

John

Sad as it is you are completely correct. Either they have to get competitive or get out of business. In the end those are the only two options.

People in the US are in for a sad life style correction that I have seen coming for a long time now. We are, on average, going to see our standard of living decline significantly over the next several years. It should have declined over the last several years, but thanks to the bankers and credit cards, etc. we "financed" our extended standard of living, kind of like using your credit card to pay for a vacation that you can't afford, and now the bills have come due.

Recently the Fed has been on a borrowing spree, attempting to spend their way out of this hole. Typically you would expect inflation to rise when the market is flooded with dollars. Instead, deflation has set in, and the value of the dollar has increased thirty percent in under two months.

So what the heck is going on here? The dollar should be DROPPING, but it's going UP. I stepped back from the problem, and I believe I figured out what happened.

It's the credit default swaps. As a lot of you know, a CDS is basically an insurance policy. Like an life insurance policy, it's virtually worthless, until the insuree dies. In this case it's not insuring a person; it's insuring a mortgage. (Actually a mortgage-backed security.)

In my opinion, credit default swaps have been flooding the world economy with money since the mortgage bubble began deflating in 2005. So we've been living in a three year flood of dollars, but that flood stopped when Lehman blew up two months ago.

If you think about it for a minute, you can see why commodity prices went completely haywire for the past few years. There were wheelbarrows full of cash getting dumped into the system because these CDS contracts were getting cashed. Money is a lot like water, it's gotta go somewhere. For the past three years it's been dumped into the stock market, into gold, into oil, into corn, etc...

When Lehman went bust, it virtually seized up the whole system. That's why everything stopped there for a month or so.

So where does that leave us today? And what happens next?

To predict what happens next, we must understand where the money came from. If the money was created by credit default swaps and hyper-inflated mortgages, then it's literally "money from nothing." The money didn't exist in 2000, it was created out of thin air, and now it's gone away again. It's almost like conservation of matter, except it's money!

But that statement doesn't explain what happens next. In my opinion, what happens next is inflation. The Fed has demonstrated that they're not afraid to increase the money supply. In fact the Fed has already pumped as much as EIGHT TRILLION into the system already! As I stated above, I believe that we haven't seen inflation yet because the CDS market was MORE than eight trillion.

But the spending hasn't stopped, and once the world economy ingests these trillions of dollars, we'll start to see inflation kick-in. When that happens, we'll see home prices flatten or begin to creep back up. I believe there's a good possibility that US wages will fall, as the dollar is so strong at the moment. My second statement is dependent on the value of the dollar, and how long it stays this high.

I sure hope I'm right about this stuff, because I've made some substantial choices based on these opinions! Six months ago I quit my job with a software company and took a job at a bank, on the assumption that the bank was "too big to fail." God only knows how many software companies will go kaput in the next few years. I also cashed out a bunch of stock I had and bought a second house. Now some people might think this is a crazy time to buy a house. But my house has lost about 10% of it's value in the past year, while the stock market has lost close to 50% of it's value. I basically chose the lesser of two evils. I also purchased the house from a builder on the verge of bankruptcy, so I negotiated a screaming deal.

Long story short - I don't just believe this is the future. I'm betting on it.