Also, if this is essentially a credit bubble, 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 in liquidity. This will help the “savers” like most of us but will kill the commodity bubble (housing, metals, etc). This option, however, maybe somewhat unpopular.
2) Naturally, the second way is that since there is a lot more greenback out there, its value should come down. So 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 and 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. It will boost people owning hard assets like homes and may well save housing from a hard landing.
Consequently, if you tend to believe that point # 2 is more likely of the two scenarios to happen then what are the strategies or backup plans for such scenario, if it happens? Shouldn’t we have some backup plan for scenario # 2 or is it a very unrealistic scenario? Gold and PMs seem to be over valued due to lot of speculation 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? What percentage should be invested in foreign currencies? Please comment as I would love to hear what more senior and experienced members on this board think who have actually seen previous recessions or bubbles.
