Roubini Bets Against the Melt

A few posts ago, Tuna Melt predicted inflation was coming, and it would lead to a rapid "recovery" of the stock market.

Nouriel Roubini of NYU, who's become the go-to guy for GFM 2008, predicts just the opposite.

Game on, Roubini.

Here's where Tuna Melt disagrees with you:

You say:
"First, the massive injection of liquidity in the financial system--literally trillions of dollars in the last few months--is not inflationary, as it accommodates the demand for liquidity that the current financial crisis and investors' panic have triggered."
TM says: And the dollar has benefited from everyone's desire to get into cash. But there's a buttload of cash out there now. More than at any time in the dollar's history. At the first hint of an upward trend in any asset market, the cash will start to move in, and the snowball will roll. You say central banks can and will mop up the excess before inflation starts. I say they tried that in 06, 07 and caused GFM oughteight.


You say:
"As long as deficits are financed with debt--rather than by the printing presses--fiscal costs will not be inflationary, as taxes will have to be increased over the next few decades and/or government spending reduced to service this large increase in the stock of public debt."
TM says: have you met the United States government? Don't forget that a Social Security/Medicare disaster is looming a decade out. The only way Big G can finance all the schemes in store for us is with the printing press.

You say:
"Wouldn't central banks be tempted to monetize these fiscal costs--rather than allow a mushrooming of public debt--and thus wipe out with inflation these fiscal costs of bailing out lenders/investors and borrowers? Not likely in my view. Even a relatively dovish Bernanke Fed cannot afford to let the inflation-expectations genie out of the bottle via a monetization of the fiscal bailout costs."
TM says: On this you are correct, but I think it's already too late for poor Ben. The Fed has pumped out an unprecedented amount of cash into the world and we're nearing the point where foreign investors don't want to touch American debt.

Madison would be ashamed.

From Federalist #10

"The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State."

Are you an elector? Then why are you voting for President?

Madison and others knew that democracy inevitably turns into grand, organized theft, and tried to curb it by making the Union a republic. But democracy turned out to be much more insidious than they ever imagined. States quickly starting choosing "slates" of electors via popular vote, and that was enough to let "the influence of factions" run rampant.

Will the US go bankrupt?

The US government is on pace to go so deep into debt that the solvency of the whole operation might one day come into question (unless the dollar tanks and the existing holders of Treasury bonds find themselves holding more worthless paper....hmmmm....).

Where might this all lead?

Today the earth has a real-time example of a first world country that's become entirely insolvent. Let's watch what happens with Iceland and see what might be in store for America some day.

More Crystal Balling

It's hardly a prediction to say Obama will win. The sun will rise, the earth will turn, the government will grow, and Obama will win.

Tuna Melt thinks the recent media reports of McCain gaining in the polls won't amount to anything. Not only will Obama win, but the democrats will crush, and I mean CRUSH, in the Congressional, state, and local races. And then in 2010 the Republicans will retake Congress in their own crushing win. And on and on...the government grows...the flow of confiscated money continues...from the politicians to the domestic bureaucrats to the tort lawyers to the bottom of the Atlantic Ocean.

...meet the nerdy cynics.

All You Adorable Voters...

Tuna Melt Steps Out On A Limb

The man behind the curtain of this blog has been content to make general political predictions that are safe to put out there. Bet that government will always grow and make even bigger messes and you'll always be right.

But tonight I'm feeling a bit more reckless. Junk bond trading hedge fund leveraging capitalist reckless.

Tuna Melt predicts that the stock market is going to come roaring back much faster than anyone (including me) ever expected when this unraveling began.

Why?

Because the dollar is about to take a nosedive. Stocks, oil, gold, silver, steel, food, and everything else that's come down from the stratosphere in the past few months (with one exception)* will find their way back to pre-GFM or near pre-GFM prices soon.

Forget the proverbial spigot. The Fed now has the fire hoses out and open to full blast. For the past few weeks, banks have been collecting all the water, but soon their stores will be full and the floodgates will open.

Stocks will rise for the simple reason that more dollars will be required to express the same values.

Fill up your gas tanks now.


* the exception is housing. It filled the role of biggest bubble in the recent pricing explosion. Regulators won't let that happen again. The uber-bubble will form somewhere else. Chinese real estate anyone?