Folks, since most of us agree that the housing bubble is essentially a credit bubble then there are 2 ways for the US Govt to get out of that increased liquidity bubble.
1) Keep increasing interest rates and tighten money supply irrespective of the economy until the resulting increase in savings brings back the equilibrium. This will help the “savers” like most of us but may kill the housing, general economy, stock market. This option will be extremely unpopular among politicians and big corporates lobbying for them.
2) Naturally, since there is a lot more greenback out there, its price should come down. Govt doesn’t increase rates further and instead chooses to cut rates back and let the dollar decline. This will also boost US exports, help reduce the huge trade deficit, reduce our foreign debt automatically. However, this will be very bad for savers like most of us with most of their savings invested in CDs, MMs or other dollar denominated securities, wiping out our saving for just being frugal. It will boost people owning hard assets like homes and may well save housing from a hard landing.
If you tend to believe the point # 2 is more likely of the two to happen then what are the strategies or backup plans for such scenario, if it happens? 100% in MMs or CDs doesn’t seem to be a good move. Gold and PMs seem to be over valued due to lot of speculation right now. I agree with Poway that with the downturn in housing bubble and the ensuing recession, commodities bubble will also perish so I don’t like investing in commodity ETFs either right now. So where to put money then? Foregin Currency ETFs or Foreign Currency CDs by EverBank or buy Treasuries of countries like Canda? Or put money in Global Bonds Funds? I am confused.
