Stocks down another 104 points yesterday…measured by the Dow.
What’s going on…? What’s going on?
That was a song by Marvin Gaye. It was also the question the interviewer asked. Followed by, what’s going to happen next?
But those are questions no one can answer. All we can do is guess…speculate…and wonder.
“Deflation now. Inflation later” is what we’ve been saying for the last 4 years.
The interviewer seemed happy with the answer. And the elaboration:
“Japan now…but don’t be surprised when we end up in Argentina.”
What do Japan…Argentina…and the US all have in common? They can print money. And when their backs are to the wall, that is what they will do.
But that’s later, remember. Right now, investors are lending money to governments at the lowest rates in history. They do not ask anything more than to get the money back. Eventually. And since the US and Japan can print, they are confident that they’ll paid.
But what about Argentina? Turns out, Argentina borrowed in dollars too…and pledges to repay, in dollars. So, you might think you’d get the same interest yield in an Argentine bond as an American one.
But what’s this? The yield on the ‘Boden,’ which is what they call Argentina’s dollar bonds, is over 17% — which is more than 10 times what you get from a 10-year US note. What gives? Simple. Argentina can print pesos. It can’t print dollars. So investors are afraid that when time comes for repayment, the Argentines won’t have enough dollars on hand.
What’s going on…? What’s going on?
That was a song by Marvin Gaye. It was also the question the interviewer asked. Followed by, what’s going to happen next?
But those are questions no one can answer. All we can do is guess…speculate…and wonder.
“Deflation now. Inflation later” is what we’ve been saying for the last 4 years.
The interviewer seemed happy with the answer. And the elaboration:
“Japan now…but don’t be surprised when we end up in Argentina.”
What do Japan…Argentina…and the US all have in common? They can print money. And when their backs are to the wall, that is what they will do.
But that’s later, remember. Right now, investors are lending money to governments at the lowest rates in history. They do not ask anything more than to get the money back. Eventually. And since the US and Japan can print, they are confident that they’ll paid.
But what about Argentina? Turns out, Argentina borrowed in dollars too…and pledges to repay, in dollars. So, you might think you’d get the same interest yield in an Argentine bond as an American one.
But what’s this? The yield on the ‘Boden,’ which is what they call Argentina’s dollar bonds, is over 17% — which is more than 10 times what you get from a 10-year US note. What gives? Simple. Argentina can print pesos. It can’t print dollars. So investors are afraid that when time comes for repayment, the Argentines won’t have enough dollars on hand.
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