[kcar]

You see the inflation in the value of the dollar. As it falls the interest rates paid to foreign buyers will have to increase, or the treasury issues will remain unsold. That'll raise interest rates everywhere, including adjustable mortgages, and that'll trigger defaults, increase the number of unsold homes (about a 10-month supply now), which will elongate the depth of that sector's decline. More CDOs backed by MBSs will discover losses and face call margins. When cash is tight people and businesses cut back. Durables goods decline this week indicated that. And the latest GDP numbers were for Q2 - the liquidity issues started in Q3. Personal spending did go up 0.6% in August, but that tends to happen with back to school. Unemployment tends to go down then because summer workers vanish.

We'll see how consumer spending does this holiday season.

[rb22982]

I do not really care that much about the value of the dollar if the products I buy all the time are relatively stable (which they are, many are dropping). As I posted in post #11, I do not believe the dollar is dropping rationally, especially since we have better growth rates, higher productivity, and lower unemployment than most of those countries. You think what you want though.

[Nervous Tick]

>>As it falls the interest rates paid to foreign buyers will have to increase, or the treasury issues will remain unsold.

I agree totally with you, but the funny thing is, Treasury issues are not yet “remaining unsold”. Quite the opposite. A lot of capital fled to Treasuries, pushing the yields down. T-bill auction rates are WAY down — substantially more than the 50 bp reduction in the fed funds rate.

Yet, you can still get decent-to-excellent rates in bank CDs, both short and medium term.

What’s your take on this? I think that for now even FDIC ensured bank borrowing carries a “risk premimum” over treasuries these days, which explains part of it... but darned if I can guess how it will all play out over the next year or three.