Me on Marc Fleury on Mark Shuttleworth on the economy (and fed rate cuts)

I enjoyed reading Marc’s comments on Mark Shuttleworth’s blog post about the fed cuts.

It’s exciting to see such economic sense from successful open source celebrities. It’s as if actors making political proclamations could comment intelligently on the Federalist Papers and their relevance today. But of course, the difference is that Marc and Mark are real life millionaire entrepreneurs and Martin Sheen only plays the president on TV. I won’t comment on real politicians, because most of them, like most millionaires, got there the really hard way (for most of us.)

Of course, I couldn’t help myself and added my comments under marcf’s blog. My prediction, in brief: stagnant housing, stagnant dollar, low liquidity, long recession, high inflation, worse news almost everywhere outside the US. I wouldn’t be surprised to see dollar/euro near parity in the next two years, but a worse economy in the US than western Europe for the average joe, who will be paying off a mortgage he can’t afford that his European counterpart won’t have.

Eventually once debts are repaid, in part thanks to inflation, slow equity buildup will make the US economy stronger. Especially US financial institutions will benefit once people can start reinvesting in stocks and real estate (which has practically become a stock, with all the realty investment companies) thanks to the bailout, the inflation writeoff, and the lack of government management that European and Asian banks have.

I’m not sure how England will fare, considering they’re (as usual) split between the US- and Euro- centric spheres. The pound will probably tank, but that might actually help investment there. Alternately, the pound stays strong and third world investments shift to London, as they’ve been doing recently. But I think British banks are on shakier ground. RBS after the acquisitions is strapped, HSBC has way more exposure than Citi to subprimes, and Northern Rock is a scary foreshadow of many others, the surface of which, no one wants to scratch too deeply.

Like the “corporate corruption” scandals of a few years ago, where Tyco was the last political scapegoat taken down, and then Democrats realized that their big corporate donors were just as vulnerable to “accounting irregularities” as Republicans.

I think banks are treading on eggshells, and no one wants to start the domino chain. That applies both to the US and England, but I think moreso in England. Especially thanks to it being a small island and having more investment overseas, particularly in emerging markets. Maybe the diversification will help it though.

Okay here’s my (slightly edited) Marc’s blog. Blogs could really use some improvement. And I hate pingbacks, trackbacks, besides not knowing how to do them. Cut and paste is my thing:

Inflation has been the endgame strategy since LTCM. Inflation was to finance the war on terror, (if you didn’t see it that’s because you didn’t look at housing or oil prices — or other “volatiles” like food that were dropped from the CPI long ago) and inflation will bail out the lenders and the housing speculators.

And there were a lot of secretaries and soccer moms speculating. I happen to know a physician’s assistant who quit her job, dropped out of nursing school, and lived the high life off of the gift of one rental from her parents, became a realtor, increased her holdings to three rentals and a place in a good school district for her and her newlywed husband. I feel sorry for her now.

It’s people like her that the government are going to bail out, because they want her vote.

And it’s people like me who didn’t get into the housing market in 2004 because it looked risky, watched it inflate beyond our ability to enter by 2006, enduring told-you-sos while we watched the purchasing power of our savings reduce by half, relished our “you were rights” in 2007, and now feel an ominous sinking knowing that the masses of people who bought at 25% above value and expected another 25% return, won’t be disappointed, and it’ll be the lunch money, retirement money, and savings of the rest of us that will have to pay for it.

The price of housing won’t go down, and the value of the dollar won’t go up.

Of course, this is all just guessing by some kid in his metaphorical parents’ garage, and I don’t pretend to understand the “dismal science” better than anyone else, but I think Mark is closer to the truth than Marc. That’s all I’m trying to say.

If I’m right on all accounts, as I expect to be –doesn’t everyone– I still doubt anyone will pay attention. Which is as it should be. I’d probably be wrong the next time.

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