Monday, January 5, 2009

How Ambrose Sees 2009

US will emerge as undisputed top dog in 2009

Central banks will do whatever it takes to combat debt deflation. Even Frankfurt will join the rush to print money, buying every form of debt from mortgages to corporate bonds. The Fed will follow the Bank of Japan in propping up stock markets. Puritans will grumble, but the surprise will be how it long takes for this stimulus to gain traction. We will learn the term "pushing on a string".

Posted by plato @ 06:41 PM (878 views)
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7 thoughts on “How Ambrose Sees 2009

  • mark wadsworth says:

    Aha, he’s come round to the “pushing a piece of string” theory at last.

    I wonder how many days it will take him to forget he ever wrote that and start calling for more interest rate cuts?

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  • Boring, boring. This article is really for December. If even one sentence of this pretty vague scenario comes true, we will hear all about it.

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  • Not one of his best but I like him because he writes well and has taken the view that the US would emerge best from this for a significant period of time – something I tend to agree with.

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  • I think it’s important to separate the dollar and the US here. The dollar is strengthening, the US is still in the doodoo though.

    Coming out best is a relative position. Power shifts take a long time. The UK had the biggest economy from the Empire 100 years ago, now we’re fourth or so I think, if that – care to guess where we’ll be in 3 years time? The US has been in the lead for a long time now – but this will severly diminish that lead. How long until China overtakes them?

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  • stillthinking says:

    He should make the point that the dangers in reflation will come not only from the current domestic US/UK stimulus, but what will potentially be heavily inflationary would be the capability of both Japan/China to export their inflation. Definitely one to think about though because he raises the question of the US recovery being first. Which probably is the best outcome (for the UK).

    As I have said before, personally I don’t think that Japan is going to recover. I see nothing but pottering on. So that leaves China. China has a good case for stimulating domestic demand, because truly, the average Chinese person doesn’t seem to have much stuff, and secondly, part of the cause of the crisis has been the suppression of domestic demand by the Chinese. In other words, there is more demand there anyway. But I have no idea about rioting in China, truth be told. My New Years resolution, look at China.

    Debtor nations cannot control inflation except through interest rates. They have no ability to soak up money in the open market. Creditor nations can control domestic inflation without necessarily recoursing to high levels of interest rates, to the detriment of the debtors. So I think whether the US recovers first, or not, they will ultimately have high inflation. So “At that point it will become clear that reflation is just as dangerous as deflation in a world of debt.”, totally spot on.

    However, a bit too soon to start speculating about recovery when the worst hasn’t even happened yet. 2009 is really the “Year Zero”.

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  • stillthinking says:

    One more comment. We should not lose sight of the fact that our current UK problems with deflation are the caused by the bursting of the housing bubble, essentially mortgage fraud in the US, and the long-standing inflation suppression policies of Asia.
    We should already have high inflation, which is why Mervyn King kept interest rates up so high for so long.
    One way or another, if defaults are not allowed, then we will certainly have an inflationary problem. I was posting recently about the scam against savers perpetrated by GB, but actually, at the moment, everything you might want to buy in the UK is getting cheaper (apart from foreign currencies of course). The realisation of rip-off will come with the inflationary surge and the inability of the government to get ahead of it. The markets apparently consider our future inflation problems to be worse than other countries.

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  • I think China suffers from a terrible demographic and a relative lack of indiviudal thought wrought by the system it operates. I see little of the necessary innovation happening without a shift towards more individual freedom. The US still draws the best brains in the world.

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