Countdown to the U.S. default, downgrade, or devaluation

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How do you think this will end

Poll ended at Sat Jul 30, 2011 5:34 pm

U.S. misses payment on bonds
1
2%
Deal is reached
2
4%
Deal is reached, that is essentially smoke and mirrors.
15
27%
Rating agency downgrades, with or without deal
8
14%
They reach a deal, but kick it down the line for another day
5
9%
All of the above
1
2%
None of the above
0
No votes
President invokes the 14th, payments are made, everyone goes to the supreme court while the debt is doubled waiting for a decision
4
7%
Dollar takes a beating
10
18%
Gold rockets
10
18%
 
Total votes: 56

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Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 5:34 pm

Thought it odd we have not dealt with this yet, and what great fun it is. Especially considering we have states that are shutdown (MN).
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 5:49 pm

You know, I actually had to give some thought recently to under what conditions we would suspend accepting dollars as payment from clients, even if just temporarily. I mean a sudden peso / dollar move, where perhaps copper prices start looking more like gold or silver prices. A sudden rush to commodities perhaps, with everyone fleeing U.S. treasuries and needing to park their money in something hard until the dust clears.

I think it would be the situation where we wake up one day, and the dollar has lost at market open like a 100 or 200 pesos. Perhaps even as little as 50 pesos might get me to catch my breath. On the other hand, I might be very inclined to acquire dollars in that circumstance, if even if on just a limited basis for speculation purposes.
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby nwdiver » Fri Jul 15, 2011 6:05 pm

Agencies are already announcing potential downgrades and putting out negative reports, both Moody’s and S&P have put out negative notices. I would think explaining this to the parties involved would get them to shake their heads, but no luck. Well they have Greece as an example of what it will look like in the streets in 2 weeks, oh Chile also ;)
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 6:30 pm

You know the slow drip, drip away of the dollar buying power I have made piece with (by not really hanging on to them for very long), and I believe in recent months a lot of our American clients have made piece with that (or at least are adjusting to it by moving funds out of the U.S. and in to other assets).

It is the sudden, someone did something very stupid (or in this case did nothing), destabilization that I would be concerned about. I don't think the World economy is any condition to take a shock, even one that might of under other circumstances, been relatively minor. There are just far too many hair trigger investors playing this market right now.
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby eeuunikkeiexpat » Fri Jul 15, 2011 7:03 pm

Charles,

Please let us know when your "real" cuico Chile contacts begin cutting deals in gold. :)
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby cali_chile48 » Fri Jul 15, 2011 7:21 pm

I didn't think that it was possible for the US to lose more credibility and prestige than we did from 2000-2008, but if the politicians can't negotiate an agreement on this issue and the US defaults on its loans, I'll have to revise my thinking.

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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 7:38 pm

I likely got a few around that would be happy to pay me in Gold, but more as a practical matter. Kind of a pain to cash Gold in Chile.

I never really gave that any thought. I don't see why not.

We now officially accept payment in Gold and Silver (sorry, no diamonds or precious stones please).

Personally I would be more inclined to accept land in exchange for services.
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby eeuunikkeiexpat » Fri Jul 15, 2011 8:03 pm

I was thinking along the lines of the Chilean upper class and the point where they would be familiar with and comfortable with taking gold bullion as payment for a small piece of gringo appealing property.
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 8:16 pm

na, don't think that would happen. You might however use it as a negotiation prop.

My dad, that was a real estate agent before becoming an attorney, had an interesting negotiating tactic. He would negotiate a deal, and bring a big stack of cash, plop it on the table, and negotiate the rest of the price down hard. The cash they could touch and feel, and makes people emotional and a bit more willing to give on the rest of the price as long as they can walk away with the cash right at the moment. I have used it a few times to move problematic people off the fence to close a deal in Chile (mostly when people are hesitating to go through with what they said they would do, or are otherwise having second thoughts).

I would be interested to see if anyone has any luck dropping a gold bar on the table in Chile to get someone to sell a property under the paper asking price.
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby eeuunikkeiexpat » Fri Jul 15, 2011 8:22 pm

Don't forget any waterfall of the USD will affect Chile to some degree because Chile idiotically holds a lot of her foreign reserves as USD (bonds and such) inside the US.

I wonder about the AFPs?
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby nwdiver » Fri Jul 15, 2011 8:33 pm

Besides not paying the swivel service salaries, it’s the down grading that will hurt the US most, money will be more expensive, the far right don’t seem to get it, their ability to borrow will be more expensive and cuts will need to be deeper and taxes higher if they default. All I see in the press is government workers won’t be paid ;(
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Re: Countdown to the U.S. default, downgrade, or devaluation

Postby admin » Fri Jul 15, 2011 8:51 pm

I read, somewhere like 40 cents on every dollar spent by the U.S. is borrowed.

That is what scares me is that a political publicity stunt gets out of hand, and next thing you know there is a overall domino effect across the World economy. Imagine the borrowing costs going up on just about everything, because of the ties to the U.S. treasuries for things like credit cards, student loans, and so on?

I have wondered about all the clauses in contracts floating around that say if some asset or company's credit rating is downgraded, then penalties, debts, or whatever kick in. It would be an automagic downgrade across the board of credit ratings for all kinds of things. I for instance dabbled in small shipping companies a while back. They all had agreements with their banks to buy ships, that where directly tied to certain credit ratings being maintained and all kinds of bad things like immediate default would occur if their credit ratings slipped.

I could see trillions of dollars of the economy wiped out in small to medium size companies going bankrupt overnight, even if it was just a short lived hick-up for the macro economy, turning in to a total train wreck.

Think about all those short-term operating loans for companies out there, that they do their day to day business based on them being able to tap that pool of cash from the bank. I bet most of those are tied directly to various credit ratings. The credit markets would seize up again, but in such a fundamentally systematic way, that I don't think there would be any way for them to simply unsieze them by printing dollars and throwing them out the window. It would not be like the last one. The last one seized up because, the markets should have seized up earlier. They were fundamentally finally working correctly when banks decided not to make more bad loans. They just overshot, and were not making loans to anyone. It really was not a seizure, as much as a short stop; but, in this case it would be the fundamental selection process or mechanism by which loans are made or not made that would seize up.
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