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Why Strong US Dollar Foreshadows Economic Doom in 2010

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Interesting read from Pravda. I've recently read similar bad news predictions for $ in 2010. Maybe we should pay attention to avoid getting sucker punched this year.

22.12.2009 Source: Pravda.Ru URL: http://english.pravda.ru/business/finance/111306-strong_dollar-0

 

Normally, in what passes for Orthodox economics, a strong currency for a consumer nation is a good thing, a positive development. And America is the biggest consumer, and one of the smallest producers, in human history.

However, in these turbulent times, this economic train wreck that has been on an acceleration course since mid 2007, a strong currency or rather, specifically, a strong dollar is an absolute disaster. Allow me to explain.

Nothing has actually changed in the US economy since the absolute collapse and nationalization of the US banking firms, and along with it the British banking houses, of 2008. Indeed, in America, the exact same games that brought down the private banks are still being played by the now government owned (or is it that they own the government...that is for another thesis) entities and this is called now called recovery. Case in point: several major banks are paying back their TARP funds and the US press is screaming to the high heavens about the wisdom of the Marxists running America. True, many of the fools that are still the majority, though shrinking, of the electorate, buy into this, but let us look closer. The TARP fund is being paid back in one of two ways: 1. unspent TARP monies are being given back to the government (note I do not say owners, since the tax serfs will never ever see this cash again) and this is called recovery or 2. The banks are selling new stock through new IPOs to pay back the debt, which in turn dilutes the value of the old stock which is held by the government, thus giving with one hand and mugging with the other, again, this is called recovery. None of the other US economic indicators have improved, especially when DC's fluff and out right lies are removed.

Now having established the continued progression of the US financial collapse, why than has the USD grown in strength so much in the past 2 weeks and continues to do so? For that we must look a the world wide picture and to the foundation of the next tidal wave that is about to sink us all.

The great Anglo Heist, the out right con job and mugging of the entire world by the Anglo Saxons (US/UK) has kicked out the supports of a lot of other nations, many of whom were dancing on supports of smaller EU and Gulf Arab con jobs. These have spent all of 2009 trying to balance themselves on a single stilt that itself is rotten through and through and again, the Western press has called this recovery or at least survival.

That all is about to change and the first dropping shoe, in what is about to be a shoe storm, was Dubai. Simply, it defaulted on most of its debt and told its debt owners that it was their fault, which it was also, for giving it money and not its fault, is the heroine junky ever at fault for his addiction -- well yes, for spending it on failed indoor winter wonder lands, artificial islands and hundreds of near empty sky scrappers.

Following this came the news of Greece's down grading and eminent demise. Greece is part of the PIGS (Portugal, Ireland, Greece, Spain) all of whom are on the edge. But in Europe, they are not alone, they are in a club that also includes Ukraine, Belarus, Lithuania, Latvia, Estonia, Hungary, Iceland and possibly Denmark, Poland is also well on its way with massive government deficits for a "recovery". Healthy or recovering EU economies are faced with massive losses and bailing out nations who, like drowning men, will pull the healthier economies into the Abyss with them.

Behind these stand other nations, such as Georgia, Turkey, Venezuela, Mexico, Columbia, Nicaragua, Argentina, as well as much of Africa.

Than there is China, who has taken bubble blowing to unprecedented levels. It has masked over capacity by doing something incredibly stupid, increasing that capacity further and further, and using the extra capacity in the creation of yet more capacity. Sure, this puts off judgment day by a few years, but it is coming and 2010 will be that day. World demand has not only not returned to the levels of 2007, and Chinese production capacity is well above what it was in 2007, but what demand has remained, is now being guarded by every economy to make sure its means of satisfying that demand, and thus providing jobs, stays at home. China, reacting like a blind sided, and spoiled brat who is used to everyone pandering to it, has swung out at the world and wound up in trade wars with the EU, US and Russia. Of course, this only further cuts demand for that ever expanding capacity. Judgment day is indeed here, as the majority of China's citizens, who make up the shoeless peasants and the near slave laborers in the plants, will never be able to afford what they produce.

So, with all this happening, nations are running to buy the USD in a false hope of its stability. This in turn strengthens the USD, killing further any recovering local industries, while giving government the means to further indebt the whole of the nation. With moves like their new socialist health care and Cap and Trade, the Americans will smother their own industry, creating millions more unemployed and raising anger to a boil, all ahead of the November 2010 parliamentary elections. The temptation to spend with abandon, to ease the anger, at least until the elections are over, will be impossible to resist.

The hangover that will be felt, first by the Americans, than by anyone who owns their debt, pretty much everyone, on January 2011, will make every other year of the past 1,000 seem like a warm spring day.

Stanislav Mishin
Mat Rodina

Entry #176

Comments

1.
konaneComment by konane - February 1, 2010, 11:28 am
"since the tax serfs will never ever see this cash again"   No truer words ever spoken.
2.
Comment by jim695 - February 1, 2010, 4:07 pm
PART ONE

You might want to grab a cup of coffee and a snack, because those who wish to read the following rant will be here for a while (my apologies to the blogger).

Mr. Mishin opens his third paragraph with the following statement: "Nothing has actually changed in the US economy since the absolute collapse and nationalization of the US banking firms, and along with it the British banking houses, of 2008."

In truth, nothing has actually changed in the US economy since the American Revolution ended in 1781 (yes, I know that the Treaty of Paris was signed in 1783, but the war was over by then, and that document was more symbolic than it was functional).

See, there's the problem (well, one of the largest, anyway); that's what the vast majority of Americans fail to understand. The corruption, the massive frauds, the willingness of our elected officials to sell themselves and their influence like prostitutes in dark alleys, all of these things and more have been present and active in our nation almost since Jamestown was founded over 400 years ago. Much like the mountain that must be climbed "because it's there," the United States Treasury is there as well, and must be looted and exploited by those who possess the power and financial influence to successfully pull it off. What we're witnessing now is the necessary economic elimination of the American Middle Class, which is essential for the creation and implementation of the coming new North American currency.

Another glaring flaw in Mr. Mishin's thesis is his reference to "a strong American dollar." This statement caught me off-guard, and I actually laughed out loud when I read it. There IS no American dollar - it's only a myth whose roots can be traced to August, 1971, when President Nixon "closed the window" on the Gold Standard, which effectively ended the long-standing Bretton Woods system of financial exchange between nations. Mr. Nixon did this entirely on his own, without consulting or notifying the members of the International Monetary Exchange, and without Congress's knowledge or approval. At the time, the Viet Nam War was in full swing, and was quickly draining the value of our gold reserves, while making war profiteers, government contractors and influential politicians rich. The United States was forced to walk a tightrope between our international debt (our trade deficit) and our national debt (our payment deficit) due to the high rate of inflation, which was largely due to the dollar's decline in value against other nations' currencies.

To be fair, West Germany did the same thing a few months earlier. The West German government refused to devalue their Deutsch Mark, which would have "propped up" the value of the American dollar on the international currency markets. Consequently, West Germany suddenly abandoned the Bretton Woods system in what would prove to be a successful effort to stave off the collapse of their own economy. In a matter of weeks, the American dollar quickly dropped nearly 8% against Germany's Deutsch Mark on the International Currency Exchange. America was printing treasury notes like there was no tomorrow and sending them overseas to satisfy our ever-increasing military spending, in a feeble and short-sighted attempt to finance a war we had no hope of winning, and one which gained us nothing (except political influence) should we declare even a partial victory. In the first two quarters of 1971, the United States sent $22 billion in assets to foreign nations to finance the war. That doesn't sound like much by today's standards, but we must remember that the price of gold was only $35 per troy ounce at the time, so that $22 billion represented a significant portion (about 35%) of our gold reserves.

(continued below)
3.
Comment by jim695 - February 1, 2010, 4:10 pm
PART TWO

In addition to replacing the gold-backed American dollar with one based solely on a promise to pay, President Nixon also imposed a three-month wage and price freeze in August of 1971, and instituted a 10% surcharge on all goods imported from foreign nations. This policy, which was not approved by the sitting Congress, was neatly packaged, wrapped up with a pretty red bow and sold to the American people, who eagerly swallowed it whole. The end result was a national false confidence in our government's ability to maintain an equally false currency, which was now based entirely on the credit other nations were willing to extend to us. No mention was made of the premium charged for that credit, but our government continued to borrow money from their foreign counterparts. Eventually, since we failed to even try to "pay down" those debts, we were forced to also finance the interest as it became due and payable.

Now, just forty years later, China and the United Arab Emirates own nearly 63% of our treasury bonds, and we continue to borrow more money just to finance the interest on what we've borrowed from them in the past. $1.5 Trillion is a LOT of money; that's 1.5 followed by EIGHTEEN zeroes, folks, or $1.5,000,000,000,000,000,000. To put this in perspective, let's assume foreign governments charge us a premium of 1% per annum. That works out to FIFTEEN BILLION DOLLARS a year in interest payments alone and, since we're borrowing the money to pay that, there's still MORE interest being charged to finance the interest currently owed. One trillion seconds equates to 31,546 years so, realistically, even if the United States were able to pay her creditors $1.00 per second, we will NEVER be able to repay this enormous, unimaginable debt; it's mathematically AND fiscally impossible!

I cannot bring myself to believe our government can be so collectively stupid as to believe this nation has any kind of economic future, but they fully expect us to believe it. As common citizens, our only hope of maintaining what little wealth we have would be to invest our individual savings in tangible gold (as opposed to gold futures). Initially, we'll lose money when the inflated commodities markets all collapse at once in another year or two (it's inevitable, because commodities-investing is a zero-sum game - for every investor who guesses correctly and makes money, there's another guy on the other end of the contract who loses an equal amount), but at least we won't be completely wiped out; we'll have something left on which to rebuild. Those who fail to invest in gold now will find themselves penniless, homeless and entirely hopeless, because there will be no way of starting over. Even those with coveted degrees from prestigious universities will find themselves unable to secure new employment, because the firms for which they previously worked will collapse along with the respective markets they serve and the entire industrial sectors which are currently supported by the business revenue generated by those firms.

The American dollar is made of nothing more substantial than smoke and the hot, moist air spewed by those we elect to pretend to represent us and who also pretend to protect our Constitutional rights and freedoms. The "strong dollar" to which Mr. Mishin refers is merely the representation of a ghost of a non-existent currency which, in turn, represents an image of the sinking flagship of a rapidly-dying national economy.

Given events which have transpired over the past five years or so, there should be enough people out there who now understand the realities of doing business entirely on credit. When you keep refinancing your home just to keep up with your interest payments, the bank will eventually come and change the locks. Your furniture and personal treasures will be stacked not-so-neatly against the curb and, before you know it, you and your entire family will be enjoying the comforts of your parents' basement. Even after all that, you STILL have to find a way to pay the bank, and they're STILL charging you MORE interest on the outstanding debt.

Now, let's see ... what do we have that our foreign creditors could repossess in lieu of 1.5 TRILLION DOLLARS ...???   

     Jim   
4.
LadyMylenaComment by LadyMylena - February 5, 2010, 4:30 am
Nice posts, Jim!!!!! It's always great to see yet another person that "gets it"!
5.
Comment by Delta Draw - February 10, 2010, 5:09 am
Awesome Jim. On the back of the dollar is the mission statement. Our dollar is the vehical to allow the seating of the capstone. But I do not agree in the safe harbor of gold. It has always been the good standard but it has been devalued before- even outlawed. To think that any wealth can escape getting raped in a global economic consolidation is the very reason gold is surging today. Rules are ment to be broken and the value of gold is no exception, no more than porkbellies or wheat. The coming storm has only one captain of salvation. Much has to be in order in preparation to the Topoff event, these are only accelerating manifestations we observe that will facilitate the seating of the capstone. NWO is emerging but something prevents it or is in the Way from it being established.
6.
Comment by jim695 - February 13, 2010, 10:16 am
@ Delta Draw:

You've missed my point entirely. All commodities are currently overvalued due to an eighteen-month-long buying frenzy, which was brought about when the number of long contracts in all markets exceeded short sales, which means that most traders believe prices, and therefore demand (again, in all markets), will continue to rise for the next three, six, nine or twelve months. This situation guarantees prices will, indeed continue upward until those who have "gone long" decide to dump (or sell) their holdings. At that time, prices across all sectors of agriculture and mining will plummet.

The various markets follow two leading indicators - oil and precious metals. Unless you happen to have high-capacity storage tanks buried on your property, it's not likely that you, or any individual commodities trader, would be able to take physical delivery of 5,000 gallons or more of light, sweet crude oil. We can, however, accept and store 100 troy ounces of gold.

Pork bellies and wheat are perishable, as are corn, orange juice, coffee, sugar and other "soft commodities." Hard commodities, such as copper, zinc, silver, gold, platinum and palladium (among others) are non-perishable, and any gold we buy now will remain on this Earth long after the human species has died out. Throughout history, gold has been held in high esteem and sought after as a symbol of opulence for those who possess it. This is true in all societies, whether tribal or civilized, and it will never lose its entire value, because commodities prices are determined by global supply and demand. Even if the United States government declares bankruptcy next year (gee - what are the odds?), we would still be able to sell our gold for Euros, Deutsch Marks, Yen, Chinese Dollars or for any other healthy currency we choose.

As I stated above, the price of gold will certainly drop when the bubble finally bursts, but my point remains: anyone who invests in physical gold now will still be able to sell his or her holdings for the currency of his or her choice. Those who don't, or those who are unable to purchase gold will be left destitute, with no financial means or prospects for rebuilding their lifestyles. My point is this: Even if the price of gold falls to $700 or $800 per troy ounce (which is likely) when the bottom falls out (which it certainly will), an investor will have lost 40% - 45% of his or her initial investment, but he or she will still have a ready source of cash. This is why I pointed out the difference between trading futures (which is nothing more than a bet on whether the price of the underlying commodity will rise or fall by a future date specified in the contract) and buying the "full" commodity contract (which gives the buyer the option of selling immediately or taking physical delivery when the full contract matures). An investor could also buy gold options for ten percent of the strike price, but then he or she would still be required to pay the remaining 90% when the specified date arrives (assuming the investor elects to accept delivery).

Gold coins from any nation are an excellent second choice as an investment for one's future (and yes; I'm aware of the situation regarding the Krugerrand). Their gold content, while not as high or as pure as a troy ounce, will retain their intrinsic value far better and more reliably than their silver counterparts simply because of their perceived value to collectors and numismatists.

You can put your faith in the hope that the pyramid will one day be completed but, personally, I believe that those who fail to learn from history are doomed to repeat it. Yes, gold has indeed been devalued in the past (although never outlawed), and it undoubtedly will be again. However, gold has the benefit of a very solid historical foundation of global popularity in both demand and usage, whereas our Dollar is backed entirely by our government's promise to pay our foreign creditors. As clearly illustrated in my previous comments, this is a promise which basic math unequivocally demonstrates they cannot keep, regardless of whether they eventually manage to build a pyramid, an octagon or a tetrahedron. Given the fact that our government is run by lawyers and accountants, and not by engineers, that capstone you're so keen on will likely be installed under the base, leaving the whole thing teetering as precariously as the current state of our dying economy.

     Jim

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