(2009-02-10) Dalio Dprocess

Ray Dalio describes Credit Crisis 2008 as a "DProcess". But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had Deflation? The answers to those questions all point to times other than the U.S. post-WorldWarII experience. This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s... Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a Debt Restructuring... This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy. We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes - the cash flows that are being produced to service them - or we are going to have to raise incomes by printing a lot of money. It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of Foreign Debt denominated in its own currency, it is preferable to print money and devalue... What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven't said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured... Only when those debts are actually written down will we get to the point where we will have credit growth. There is a Mortgage Debt piece that will need to be restructured. There is a giant financial-sector piece - banks and Investment Bank-s and whatever is left of the financial sector - that will need to be restructured. There is a Corporate Debt piece that will need to be restructured, and then there is a commercial-RealEstate piece that will need to be restructured.

Hmm, sounds like holding cash (savings) or other dollar-denominated liquid assets (stocks, Mutual Fund-s, etc.) is a bad idea. I suspect a lot of other countries are the same way, leaving you with hard assets (Gold, productive machinery). What about China? Sounds like it's time for them to start buying up US assets like Japan did in the 80s...

Umair Haque agrees that personal-savings sounds like a rube-move. I Commented.