Like the illusion of Wall Street, with its vast and powerful investment banks, now shuttered, China too is an illusion perpetuated by the Globalists that gave us the 15,000 mile Caesar salad, poisoned cat food and lead based paint on babies' pacifiers. Like the illusion that money would come from thin air to always push housing prices higher, China has spent a generation pursuing its illusion. Pursuing an unattainable dream to be like the West, while 6000 years of its carefully shepherded top soil blows into the sea.
Joined: Aug 24, 2004 Posts: 397 Location: United Kingdom, Various
Posted: Fri Sep 10, 2004 10:36 am Post subject:
Quote:
Markos is spot on. Good post. We have the same in the US. the gilts here are US treasury notes. Understand, that every single dollar created in the US in circulation is debt money backed by nothing but our promise to pay. If we all paid our debts there would be no money in circulation. for example, when you take out a $100,000 loan to buy a house, the money to repay the interest on the loan is not created, only the principal which in turn, is based only on a 10% reserve requirement. the $90,000 is created out of thin air and only becomes a ledger entry that they reduce each time you make a payment.
I'm not quite sure Monte is getting to the brunt of it. Correct me if I'm wrong, but isn't it correct that if you didn't own the currency you were buying oil in, you would have to print currency in order to convert to the dollar...which might threaten inflation of your currency. Therefore to avoid massive inflation, it is best for a particular currency to supply goods and products to the US in order to obtain dollars?
I haven't read that in an economics textbook, but it makes sense to me. Anyone read something to that effect from a reliable source?
Mark
Yes, and also by converting your currency you devalue it against the market, making it necessary to print more to keep up.
Quote:
Well, um...just a few little things like cars, appliances, airplanes, steel, aluminum, semiconductors, wheat, corn, beef, pork and other stuff which earns US companies 50 - 100 billion dollars a month
Jackbob, Yes, this is true, but America doesn't have a trade deficit because of our failure to export, but because Americans have a propensity to spend today, rather than save for tomorrow. Because Americans don’t save nearly enough to pay for all the things they want, we have to borrow money from the foreigners. But, since we can’t eat, wear or make computers out of money, we have to use the borrowed money to buy stuff from the foreigners. In so doing, we create the trade deficit. It's the transition from a petro dollar to a euro that would cause the problems. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Aug 13, 2004 Posts: 115 Location: United Kingdom
Posted: Fri Sep 10, 2004 3:51 pm Post subject:
Quote:
Well, um...just a few little things like cars, appliances, airplanes, steel, aluminum, semiconductors, wheat, corn, beef, pork and other stuff which earns US companies 50 - 100 billion dollars a month
Jackbob, Yes, this is true, but America doesn't have a trade deficit because of our failure to export, but because Americans have a propensity to spend today, rather than save for tomorrow. Because Americans don’t save nearly enough to pay for all the things they want, we have to borrow money from the foreigners. But, since we can’t eat, wear or make computers out of money, we have to use the borrowed money to buy stuff from the foreigners. In so doing, we create the trade deficit. It's the transition from a petro dollar to a euro that would cause the problems.[/quote]
I think you've just agreed with what I said to start with. If the euro oil thing happens, as the dollar weakens Americans simply can't afford stuff from other countries, so reduce their buying of it. At the same time our exports become very good value to Euro denominated nations and they buy more. The one that troubles the waters is China - because they have artifically pegged the renminbi or whatever they call their currency unit to the dollar.
If the euro oil thing happens, as the dollar weakens Americans simply can't afford stuff from other countries, so reduce their buying of it. The one that troubles the waters is China - because they have artifically pegged the renminbi or whatever they call their currency unit to the dollar.
JackBob
Ah, but you see Jack, we can't afford to buy the stuff now! We are borrowing to do it, and we will continue to do so. This is what I am watching, as our economy improves, the trade deficit grows. Yes, china is the wild card, they are growing too fast 8.7% growth in GDP. The Chinese people are getting their firs cars and refrigerators...gonna be hard to shut that down. 40% in the world's increase in oil demand last year came from China alone. I think we are basicallly on the same page. so many indicators to watch, it is good to have another view of things. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Fri Sep 10, 2004 7:44 pm Post subject: Update
As I have posted earlier, current account deficits greater than 5% of GDP leave an economy vulnerable to sharp currency depreciations. The arguments for continued euro strength definitely outweigh the arguments for a reversal. The weakness of the dollar is structural and unless there is a significant shift in foreign sentiment towards US assets, the weakness of the dollar is expected to persist into 2004. This graph represents the euro rise against the dollar, or in other words, the dollars depreciation.
Here are things to watch for with regard to the euro vs the dollar:
Poor consumer spending data and low growth in GDP.
Oil prices rise and corporate profits go down, especially with the airlines and chemical commodity companies. Vehicle inventories are up already. The SUV’s aren’t selling.
Watch the Twin Towers; trade and national deficits. If the US economy recovers, imports will rise worsening the trade deficit. The trade deficit is a side effect of the American propensity to spend today, rather than save for tomorrow.
At the moment, it is unlikely we will attract any private foreign investors to service the debt. At the present time we are being covered by the central banks, consolidating all that debt in the company of foreign governments. This is not a good position for the US.
Finally, if we have another terrorist attack, the dollar will tank against the euro resulting in higher inflation and interest rates. Right now, we are in the eye of the Perfect Storm. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Jul 21, 2004 Posts: 1331 Location: Suburban tar sands
Posted: Sat Sep 11, 2004 12:28 am Post subject:
MonteQuest wrote:
Quote:
I really don't understand this. If I want to buy a million dollars worth of oil, I just go to my bank and convert my local currency (yen, marks, pounds) to dollars. Why should it matter to me which currency the price is quoted in?
Its not what currrency the price of oil is quoted in, but what currency you must pay for it in. With the fluctuations of currency, if you converted your yen to dollars every time you bought oil you would be gambling. You would be devaluing your currency against the market.
But this is more or less balanced when the oil exporters want to spend their petrodollars on Sonys, Volkswagens or (what does the UK export these days?) - they must convert dollars to yen, marks or pounds.
MonteQuest wrote:
The US dollar is not called the petro dollar for nothing. Countries banks therefore hold large US dollar reserves to buy oil. They don't just stack them in the vaults, they purchase US security assets and fund our debt. Get it now?
This is the "psychological value" I referred to. You are correct that central bank holdings are mostly in the form of interest bearing Treasury bonds:
http://www.globalpolicy.org/socecon/crisis/2004/0205dollaralternative.htm
"The percentage of U.S. government debt owned by foreigners stood at 37.3% last year, compared with 33.9% in 2002 and less than 4.7% in 1965. Foreign central banks hold more than $800 billion in Treasurys -- $1 of every $5 the U.S. government owes."
From this I calculate total US govt. debt is 5 x $800 billion = $4 trillion. 37.3% x $4 trillion = $1.5 trillion held by foreigners.
So the amount of cash held abroad is about $370 billion.
This makes the total of Treasurys + cash about $1.8 trillion, or about $15,000 per US family.
Of course you have to add to this your share of state and local govt. debts as well as personal debts, I don't know how much of these are held by foreigners.
And of course the US has kindly lent lots of money to poor (but helpful) countries who can't possibly pay it back.
Joined: May 24, 2004 Posts: 3429 Location: California, USA
Posted: Sat Sep 11, 2004 12:31 am Post subject:
Monte, I'm not a finance expert, but every time I hear someone say "The Rothschilds," my gut reaction is "yeah, International Jewish Conspiracy and blah blah blah," i.e. my Skepticism Meter goes off the dial.
However, you're welcome to try to prove your assertions. Where's your proof? And what about dear old Mr. Occam and his metaphorical Razor?
So far I haven't found a conspiracy theory that would outlive the counter-hypothesis of "emergent effect of self-interest on the part of people with similar cultural values."
Not to say that the Hubricious Class shouldn't be brought back down to earth, clearly they should be. In my oldschool conservative view of things, an entrenched economic aristocracy is as much a threat to individual liberty and freedom of enterprise as an authoritarian government, only more insidiously because it's more subtle. As well, excessive complexity in a financial system is as inimical to a free society as excessive complexity in a legal system: complex rule-sets provide hiding places for scoundrels to exert leverage. A close friend whose engineering talents have always amazed me, puts it this way: "Few rules, and simple rules."
(Speaking of engineering, I have to go design a PBX network tonight, I really should get the heck off the board and go do it...:-)
Current US deficit is 7.3 trillion 48% is foreign held debt= 3.5 trillion. It is going up so fast I am not sure just what the true figures are.
The figures I have somewhere say in 2003, the foreign reserves held by Asian central banks grew by a third to $1.9 trillion—$1 of every $4 the U.S. government owes. The two biggest foreign holders of U.S. Treasuries are Japan and China.
The remaining 1.6 trillion is private investors= 3.5 trillion in foreign debt.
Quote:
But this is more or less balanced when the oil exporters want to spend their petrodollars on Sonys, Volkswagens or (what does the UK export these days?) - they must convert dollars to yen, marks or pounds
Not when you have a $600 billion dollar trade deficit it doesn't. The oil exporters have the dollar advantage, but what if you are Japan and import 99% of your oil?
Quote:
And of course the US has kindly lent lots of money to poor (but helpful) countries who can't possibly pay it back.
Most of those loans are made by foreign banks holding US security assets.
I think we are in agreement mostly. These are huge numbers to try and keep straight.
Quote:
This is the "psychological value" I referred to.
What do you mean by that? Trust in the security of US assets? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
I do understand that there is a psychological value to the US dollar being the main medium of exchange. This causes governments and individuals around the world to hold vast quantities of US paper dollars.
In July of 1944, a small country inn in the State of New Hampshire known as Bretton Woods was selected as the site for a series of meetings designed to lay out the economic blueprints for the post-war recovery. Among those attending were U.S. Treasury Secretary Henry Morgenthau Jr. (CFR) (son of a founding CFR member), representatives of the United States, Great Britain, Russia, and forty-one other nations.
From July 1 to July 22, they created an accord which established the International Monetary Fund (IMF), the World Bank, and later (1947) resulted in the General Agreements on Tariffs and Trade (GATT)—most of the instruments they would need to implement world government.
This was when the US dollar became the medium of exhange, as you put it. When OPEC was formed, it was agreed that all oil purchases were to be made in dollars, i.e, the petro dollar. This is what causes the countries to hold vast amounts of US dollars and US treasury notes, not a psychological value. Capisce? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Sat Sep 11, 2004 12:52 pm Post subject: Some clarity to the issue.
I started this thread because I feel it is one of the most crucial elements at play in the world today and will have a great effect on our ability to achieve a soft-landing post-peak. From reading the reply posts, I think a little more clarity is in order. I will refrain from using too many figures to make my points, and instead just some plain talk.
Over the past three years, 200 basis points in FED rate cuts and about $200 billion in additional deficit spending each year have been required just to keep GDP growth where it is. At the end of World War II, the US had the largest net saving position in the world. The US was able to finance GDP growth itself but as the years rolled by ever greater amounts of savings from the rest of the world have been needed. Our savings rate now is down to 1.3%. To finance itself now, the US needs nearly 80% of the world's savings.
The US shift from supplier to consumer of global capital began in the postwar decisions to pursue consumption-led growth. This strategy contributed to winning the Cold War by supporting US allies as they rebuilt their economies. During the eight years of the Reagan presidency, the United States moved from being the world's largest international creditor to the largest debtor nation. While Reagan cut taxes, he had to increase borrowing to pay our way. Capisce?
America became a high-consumption, low-savings economy, and this supported employment and political stability in the economies of its high-saving, high-production allies. The problem with this relationship is its success. As long as the rest of the world could not compete with the US as a locus of investment, there was little difficulty in selling dollar debt instruments like Treasury Notes, US corporate bonds, and US equities to foreign savers. Now world investors are massively overweight in dollar assets. Even a moderate decline in demand for US assets would lead to a significant fall in the foreign exchange value of the dollar.
One of the major tenants of the so-called Washington Consensus was to get the rest of the world up to US standards with respect to investor attractiveness. We succeeded. There are many places in the world now other than the US where billions can be invested safely and at high returns. The world's portfolio managers are overweight in dollar assets and have a natural incentive to diversify out of dollars into euros and yen and other Asian currency assets and emerging economy assets. This forces the Fed to increase the money supply to compensate for declines in the value of the dollar resulting from those sales due to the monetary exchange rate. For example, if a dollar depreciates 50%, it is now worth $.50 in relation to other currencies. So, to compensate the FED has to create, or borrow into existence another $1 to be able to buy the same amount of goods or services.
It's this higher cost of capital that has the over-leverage crowd wringing their hands. It's a cost that cannot be offset by Federal Reserve rate policy. In fact, too much monetary expansion can make things worse by causing the dollar to fall even faster, intensifying dollar asset sales by foreign investors and pushing up the cost of capital to private US borrowers even higher, forcing the FED to increase interests rates to offset the inflation. Whew!
Bottom line, fiscal policy and monetary policy are becoming less effective. Tax cuts, FED rate cuts, and deficit spending are not stimulating the GDP growth we have been accustomed to since the end of WWII.
For centuries there has been big money to be made by international bankers in the financing of governments and kings. Such operators, however, are faced with certain thorny problems. We know that smaller banking operations protect themselves by taking collateral, but what kind of collateral can you get from a government or a king? The collateral the US uses today is an IOU (US securities), backed by the wealth of our nation and our economy. But when these promissory notes become due, how do we pay them? Tax dollars? Guess again. We sell our creditors more IOU?s, use that money to pay the first IOU with interest, thus compounding our debt. Every year, we refinance our "house"with the foreign bankers. We now owe $7.3 trillion for "our house."
Like a business, no government can borrow large amounts of money unless willing to surrender to the creditor some measure of sovereignty as collateral. I don't think I want Japan and China to dictate policy to us, do you? And, if you want to stay in the king-financing business, it is wise to be able to collect the debt from those to whom you lend. Not only are we the biggest borrower, but the only enforcer on the block. Thus the foreign banks move towards the euro is their only defense. Sounds ominous, doesn't it?
This is why the euro vs the petro dollar is of such geo-political importance in our current foreign policy.
In his address to the Democratic National Convention, former President Bill Clinton said, "Sure, they're competing with us for good jobs but can we enforce our trade laws against our bankers?" _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Last edited by MonteQuest on Sat Nov 20, 2004 5:58 pm; edited 1 time in total
Joined: Aug 13, 2004 Posts: 435 Location: Hiding from the All-Seeing Eye
Posted: Sat Sep 11, 2004 8:25 pm Post subject:
What happens when the Baby-Boomer generation starts to retire? Those job positions will have to be filled.......that is if a majority of the Baby-Boomers can retire.
I'm willing to bet our government will put some type of spin on it....like how we're creating more jobs than ever before and our economy is taking off again. What effect will this have on the American Dollar?
What happens when the Baby-Boomer generation starts to retire? Those job positions will have to be filled.......that is if a majority of the Baby-Boomers can retire.
According to the Social Security Administration 97% of people 50 years of age today will be dead, dead broke, living with friends and relatives, or on charity by the time they reach 65. 3% will be financially secure. It is not a coincidence that those 97% worked in linear income occupations ( you work, you get paid) while the 3% had residual incomes. The difference?
Those 97% worked for money. Money worked for the 3%. Remember in my earlier posts that the savings rate of Americans is now 1.3%. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
I think this forum is mainly meant for people who do their own research and have something of benefit to say or report to the forum for other people to either provide feedback or their understanding on
Agree that there are quite a few postings with Red Herring stamped all over it.
I don't see anything wrong with swaying an argument in the direction that the poster desires (yours truly: guilty as charged), but to do this down a dead end doesn't work for me. A series of endlessly repetitive canards is the phrase that best describes this situation.
Posted: Sun Sep 12, 2004 12:14 am Post subject: so what does this all add up to?
ive just finished reading this post for the second time, and am wondering how this will all lay out in context with peak oil and government intervention.
it seems rather obvious that a major consequence of this will be a collapse of the housing bubble and people losing their homes when interest rates are pumped up..
but what does this mean for a person (like me) who only has credit card debt and can no longer pay it?
furthermore, what would be the rationale in even considering paying back consumer debt at all, if and when the economy tanks our debt based system could collapse anyway.
if inflation hits hard, monetary debt is in effect lowered as cash becomes easier to come by, so credit card debt seems likely to shrink as inflation takes effect.
i dont own a car or any single item worth more than about 600 dollars, so couldnt i just max my credit cards and not even think twice? clearly commodities would be a good spot to invest, and i really need to increase my food and water supply...
and the whole 'peak oil' topic in general makes me want to go spend money in frivolous things because our system is not sustainable, and to invest in a system that is only going to collapse seems absurd.
my only reservation is, that when the economy begins to sputter severely, will government use debt as an excuse to round up people and put them into work camps??
in any case, i would be better off than a family who just bought a new home or car... right?
Posted: Sun Sep 12, 2004 1:05 am Post subject: Re: so what does this all add up to?
ShawnAvery wrote:
it seems rather obvious that a major consequence of this will be a collapse of the housing bubble and people losing their homes when interest rates are pumped up..
but what does this mean for a person (like me) who only has credit card debt and can no longer pay it?
furthermore, what would be the rationale in even considering paying back consumer debt at all, if and when the economy tanks our debt based system could collapse anyway.
if inflation hits hard, monetary debt is in effect lowered as cash becomes easier to come by, so credit card debt seems likely to shrink as inflation takes effect.
i dont own a car or any single item worth more than about 600 dollars, so couldnt i just max my credit cards and not even think twice? clearly commodities would be a good spot to invest, and i really need to increase my food and water supply...
and the whole 'peak oil' topic in general makes me want to go spend money in frivolous things because our system is not sustainable, and to invest in a system that is only going to collapse seems absurd.
my only reservation is, that when the economy begins to sputter severely, will government use debt as an excuse to round up people and put them into work camps??
in any case, i would be better off than a family who just bought a new home or car... right?
thanks for input in advance
-shawn
Shawn, All I can really say is to look back at history. In 1923 Weimar Germany, inflation got so rampant that a well barrow full of Reischmarks wouldn't buy a loaf of bread. The printing presses literally couldn't print money fast enough.
The bankers used dollars to buy jewelry, artwork, homes, businesses, farms, and factories from Germans who needed the money to buy food. Within months, the German bankers had become multi-millionaires and the German people had been reduced to paupers. While the rest of the world experienced the Roaring Twenties, a time of great prosperity, Germans were in abject poverty. Many of them starved and froze to death.
In 1929, following the stock market crash bankers here bought companies and people's homes for pennies on the dollar. 65% of new mortgages in the US are variable rate-not fixed. As interest rates rise to staff off inflation, people will lose their homes again. And once more the wealth of the people will be transferred to the wealthy bankers and corporations.
As to your credit card debt and what the govt will do, I don't know. In the best case scenario, we just might put this off for a while , but many occupations are going to disappear. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
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