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Wednesday, November 05, 2008


limitations of keynesian stimulus

via yves smith -- important commentary from edmund phelps.

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gm- I've been slightly perplexed by your occasional references to the swiss franc (but no mention of the yen) as a safe haven (and yes I know it was also one of the carry trade funding currencies). According to ML (via Felix) it is the second riskiest country, at least by some measures...

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to be honest, hbl, i'd have to see a lot more of merrill's report to understand their rationale.

switzerland's great weakness, it seems to me, is the high reliance on a banking system much larger than its domestic economy at a time that might be the death of banking. structurally, there is otherwise much to recommend the swiss franc -- high savings, high current account surplus, a lot of things that should bolster a currency.

while it has in common with iceland this dependence on banking, this is not iceland. however, that doesn't necessarily make the CHF a safe haven.

fwiw, i don't mean to ignore the yen -- it has many of the same positive attributes. it's a bias.

how does one open a yen bank account, hbl?

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Good question, and I don't know the answer, if it is indeed possible. The EverBank accounts (subject to FDIC limits) may translate to real Japanese bank account holdings, I'm not sure. I'm sure you're aware of FXY but of course that is just an ETF that is subject to failure if JP Morgan proves too-big-to-bail (if I'm understanding it correctly).

I guess it seems to me that if things got bad enough for derivative yen products to fail then I'm not sure how accessible money held in a foreign bank account thousands of miles away would really be, anyway? That scenario seems to lead to the physical gold coin recommendations many people make...

My knowledge on this stuff is limited so I'm happy to be corrected.

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it might be time to find out how, hbl. i'm fine with storing some wealth in inaccessible places for long periods if it proves a store of value. we (dollar holders, that is) are benefitting at the moment from global dollar deleveraging -- but should the government turn a corner on monetary aggressiveness in the face of credit aggregate collapse....

though i suppose even the yen is no necessary haven if we get into a series of competitive devaluations, as has sometimes been an aspect of global collapses. truly only goods would be a store of value then.

i had noticed recently that platinum has utterly crashed, being not only a precious metal but an industrial one. might be worth thinking about. it is coined, iirc.

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as to why its time, consider. faber knows far more about the swiss franc than i do, and he thinks it no haven. and sovereign default for the united states means you cannot keep wealth here.

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Interesting Faber interview.

Does "it might be time to find out how" refer to Japanese bank accounts or precious metals? If you come up with recommendations please do a post :)

Personally I tend to agree with Mish that in the short term the dollar is safe and like in Japan even heavy printing won't be enough to cause hyperinflation. (Roubini is not concerned either though he sees a long slow dollar decline).

What are examples of countries that have entered a deflationary spiral and THEN swung to high inflation? It would be valuable to see more case studies to ground this widespread fear about the US. I guess the 40% dollar devaluation in 1933 sort of counts but is a one off shift, right?

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