David Merkel submits: So Jimmy Rogers thinks the US dollar is going down? He might be right. There are few roads out of this crisis (more than one can be used): Read more »…

Precursors of a depression:
1) a determined effort to spend as much as necessary to prevent lenders to financial institutions from incurring losses
2) a collapse of international trade and a shift to autarky

What is going right:
1) forex exposure is currently held by foreigners
2) US policy has been so bad for so long it’s hard to get much worse and is likely to get better. For example, if international trade does collapse, US manufacturers will actually benefit somewhat.

The problems facing the global economy are well documented. For the life of me, I can’t conjure up a scenerio that does not avoid a long deep rolling period of recessions or a depression.

SV,
Sure we can have inflation. If the Fed monetizes more than has been destroyed we will have inflation. The real question is what will foriegn treasury buyers do?

The question I have for anyone is which would you prefer?

A) A nasty depression/deflation that inflicts pain among all lasting 2-3 years followed by recovery OR

B) A 5-10yr recession with raging inflation until the gov’t can no longer borrow.
“”"”"

I see inconsistencies in you B scenario. Even if you go with the depression scenario–I don’t buy it but then again I was one who thought Ambac was a good investmetn –it will be a deflationary bust. That’s what the market is saying and that’s what nearly all of the depression proponents say as well. You are not going to face inflation under such a scenario. Inflation is the last thing that will occur and debt/cash will be king. If anything, it will be easier for the US government to issue debt (since everyone else will be going bankrupt.) Just look at Japan. Japan has gross debt equalling around 200% of GDP and investors are still willing to buy its debt–at very low rates as well. Your B scenario is similar to Japan.

Anyway to answer your question, well, I personally am only saying that we are not going to face a depression (I roughly define depression as all sectors of the economy contracting–this is consistent with GDP falling, say, 10%+.) I personally am not arguing we won’t face a somewhat severe recession. I think everyone is saying we are in a recession and very few (outside politics) will ever claim that you can prevent it. What people like me support are mitigating the downside and preventing a depression. Avoiding a recession is impossible.

What is most interesting is to observe the intensity at which people continue the attempt to pursue and define something that is not knowable — the future…

“The difference between what the most and least learned people know is inexpressibly trivial in relation to that which is unknown.” ~ Albert Einstein

For your comfort even Argentina got out of their depression with capital moving out of the country fast, the peso collapsing, business with debts in foreign currencies, the government deep in debt too and runs on the banks. The GDP collapsed but it growth jumped after two years. The same with Mexico 1994, Chile 1982, and several other cases.

You will get out of this fast, but the actions needed are counterintuitive to libertarians. Some of them may even seem reckless.

The USA government can borrow at incredible rates, we foreigners do not have many alternatives to the dollar (yet), helicopter Ben is willing to use unorthodox policies, and a new president with a supporting Congress and political capital will act (you need that infraestructure bill).

And please capitalize the financial institutions and renegotiate lower those mortgages. Recognize the hidden liability fast!

One small point of disagreement: As Todd Harrison has continually pointed out, the stronger dollar is not a positive sign [unless you are travelling to Europe] Note that the crash of the last 4 months has coincided with the dollar rally–it is not a coincidence.

The problem is of course that a weaker dollar poses all kinds of other risks and will be a sign of the inflation scenario coming to fruition.

Such is the Scylla and Charybdis situation we are in.