Peter Schiff vs. the Fed 70 comments
August 08, 2009
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Peter Schiff Thursday on MSNBC's Morning Joe. There is a ton of material in here besides the Senate discussion. Schiff articulates clearly that the financial crisis has passed but the economic one is still squarely upon us. His targets are moral hazard, Greenspan, Bernanke and the Fed. Scarborough mentions the SEC decision in 2004 that allowed leverage to balloon for the lucky 5, and also takes a shot at Paulson. Excellent discussion.
See also:
Peter Schiff: Of Course We're Not Going To Payback The Chinese
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This article has 70 comments:
www.schiffforsenate.com/
The ballooning deficit is an even bigger problem than quantitative easing by the Fed. At some point, the Fed will be able to reverse course and unwind the monetary stimulus. Counter-cyclical monetary policy makes sense from a Keynesian perspective, and the Fed will be able to withdraw liquidity without partisan bickering over minutia (whether the Fed WILL withdraw liquidity at the right time is another question entirely).
But counter-cyclical fiscal policy is notoriously difficult to unwind. Once a government program is in place, it takes on a life of its own. That's why long-term government programs are a terrible way to fight a recession--any recession.
Peter Schiff points out the core of the problem: The U.S. is addicted to debt. We "solved" the tech bubble with easy money that created the housing bubble. Now we are "solving" the housing bubble with even more cheap money. Today's massive monetary and fiscal stimulus is creating the "Mother of All Asset Bubbles". You don't help a drunk by giving him another drink.
Peter focuses rightly on our trade deficit. We simply cannot consume without producing, and we need to restore competitiveness. The U.S. has been getting away with massive Treasury issuance because the dollar is THE global reserve currency, so it benefits from a flight to quality during times of stress. But as the U.S. government loses its creditworthiness, we risk a catastrophic collapse in the dollar. Even without a collapse, we will certainly face a weaker dollar. This will lead to higher import prices and higher inflation. A weak dollar only exacerbates the inflationary pressures created by massive monetary and fiscal stimulus.
As for healthcare, this is a perfect example of fiscal stimulus that does NOT fight a recession. We are drowning in debt, and we need reform that does not add $1 trillion to the deficit. I believe that we need a safety net for the weakest members of society, and this should be a spending priority. But we should not kid ourselves that healthcare spending will fight the recession. It merely creates a long-term program that will be impossible to cut back once people get accustomed to the benefits.
We need healthcare reform in the context of a balanced budget. Otherwise, we will put debt on the backs of our children for generations to come.
Thanks Peter.
I have no doubt Peter Schiff will be able to raise the capital he requires for his run, but whether he will be able to convey his message that government is the real problem, while also offering actionable solutions, remains to be seen. I wish him the best of luck, as he is precisely the type of Change everyone should Hope for.
Shiff misses the point of much of the current QE and fiscal stim: plugging the holes in the monetary dike. The lions' share of the money supply is credit and it continues to contract, along with velocity. This is one reason why inflation remains a fear of the herd, but doesn't show up in reality... and won't for quite some time as the deleveraging continues unabated.
1. He underestimated the degree to which the world stock markets take their cues from the US.
2. He believed the beginning of this crisis is when people would dump the dollar.
His second prediction could still easily come true within the next few years. Why would holders of the dollar dump the it when that would inherently diminish it value? Better question: Why do smart people walk away from the poker table when they're up? Hmmm.... because when the music stops they want to make sure they've still got a seat. THAT'S WHY!
Be careful..... there's a lot of people still drinking the dollar kool-aid (look above at puravidavid). This is a multi-generational brainwashing that's been going on, and it's not going to unwind peacefully. A major world event of some sort will be the catalyst for a quick dollar decline at which point the US will try to 'voluntarily' devalue it currency in one last desperate attempt to keep the game going. I can't even IMAGINE the the backroom deals that will go on during that event (in all likelihood they'll have to do a reverse mortgagte on the whole country to get the other nations on board with this....wait, hasn't that already happened).
Are you afraid of Paper Wealth? You SHOULD BE!
www.youtube.com/watch?...
Dodd has raised millions of campaign dollars from financial institutions that he oversees.
If Dodd raises ridiculous sums to defeat Schiff from nationalized banks that depend on his decisions as a senator, will he not be directing taxpayer money to banks and then back to him?
I don't think Jesus Christ could beat Dodd under these circumstances.
Get ready to see Dodd's competitor, whoever that is, villified like no other. Dodd will be forced to run the most well financed negative campaign in history.
We're all cheering for you Peter.
Your observation re the failure of inflation in a contracting credit supply is admirable, But I must take exception to your assertion that "the current QE and fiscal stim" is capable of plugging any sort of monetary hole - such tactics only rearrange wealth, never create it. And invariably rearrange it into more foolish hands (taxpayers to banksters), however charitable the intentions. The coming ruin can be shared out, but not avoided.
This sort of economic mythology is the dead mouse on the kitchen floor of America. Peter Schiff is exACTly the man to finally pick it up by the tail, and throw it out the back door.
(yes, I stole that line)
Robert Prechter has opined that Schiff is headed for a Nobel Prize in economics. I hope he is right.
Chris Dodd: could not predict the future. The only thing he predicted was his sweetheart deal he got from Country Wide. (Mind you this is when he was arranging a 'special' deal for them).
But hey, this is AMERICA! We don't care about how good you are, but rather just how well connected you are.
How are these predictions:
1. Freddie and Fannie will be a blackhole of taxpayer debt.
2. Any help given to GM will lead to nationalization.
3. If try to occupy Middle Eastern countries it will be to our detriment.
4. The Bretton Woods system will break down (old prediction).
These all have come from Ron Paul over the years. But nobody cares! He was the only candidate to predict everything that's happened over the last year. With that in mind, why does it matter if you're right? It only matters if you're plugged into the machine, which Peter Schiff is not.
Dr. Paul probably got about 5% of the vote during the primaries. That's the number of people who aren't part of the United States of Amnesia.
Why don't we protest anymore?
www.youtube.com/watch?...
On Aug 08 12:02 PM Robert Martorana wrote:
> The U.S.
> has been getting away with massive Treasury issuance because the
> dollar is THE global reserve currency, so it benefits from a flight
> to quality during times of stress.
When foreign countries look at our 'debt', they don't just look at the CURRENT debt. What they really analyze is our future liabilities. This includes medicine, social security, etc. Don't forget that Social Security is the biggest Ponzi scheme ever devised. When it was created we had a lot of children and very few older people, now however, the pyramid is upside down. ALL OF THE MONEY HAS ALREADY BEEN SPENT. Ask David Walker or watch I.O.U.S.A.
Depending on who you ask our future liabilities are $50-70 TRILLION which will have to be paid in the next 20-30 years. I've never heard a rational explanation by any politician how we're going to square things up.
Furthermore, it's a bit simplistic to just look at a debt/GDP ratio when we're an economic giant among midgets. Try looking at a debt to world GDP ratio to understand the scale of the issue.
The clock is ticking.... Are YOU ready?
www.youtube.com/watch?...
On Aug 08 12:53 PM Nelsanity wrote:
> When people say we are the largest debtor nation although true nominally,
> if you look at it as a proportion of GDP it is pretty tame. Yes
> we do issue lots of debt and there is only so much the world can
> absorb especially in such a short amount of time, but compare us
> to some other countries like Japan, Italy or a few other euro countries.
> What people need to focus on are the bogus entitlements that Obama
> is creating which will balloon our debt / GDP ratio to similar levels
> as the countries just mentioned.
I think if you read my short post you see that we agree. Not sure why are you trying to tell me things I said in fewer words. I dunno, did I not come across that way?
here's some of what i wrote:
"yes we do issue lots of debt and there is only so much the world can absorb especially in such a short amount of time"
"What people need to focus on are the bogus entitlements that Obama is creating which will balloon our debt / GDP ratio to similar levels as the countries just mentioned."
On Aug 08 01:25 PM aNewEraBegins wrote:
> Nalsanity:
>
> When foreign countries look at our 'debt', they don't just look at
> the CURRENT debt. What they really analyze is our future liabilities.
> This includes medicine, social security, etc. Don't forget that
> Social Security is the biggest Ponzi scheme ever devised. When it
> was created we had a lot of children and very few older people, now
> however, the pyramid is upside down. ALL OF THE MONEY HAS ALREADY
> BEEN SPENT. Ask David Walker or watch I.O.U.S.A.
>
> Depending on who you ask our future liabilities are $50-70 TRILLION
> which will have to be paid in the next 20-30 years. I've never heard
> a rational explanation by any politician how we're going to square
> things up.
>
> Furthermore, it's a bit simplistic to just look at a debt/GDP ratio
> when we're an economic giant among midgets. Try looking at a debt
> to world GDP ratio to understand the scale of the issue.
>
> The clock is ticking.... Are YOU ready?
>
> www.youtube.com/watch?...
>
> On Aug 08 12:53 PM Nelsanity wrote:
The healthcare bill will facilitate this slaughter.
As foreign money dries up and tax revenues decline, Ezeekial Emanuels plan to triage health care will push grandma and grandpa to the curb and solve the social security problem.
Anyone over the age of 50 should be very nervous right now.
Oh yeah, terminally ill children are screwed too.
On Aug 08 01:25 PM aNewEraBegins wrote:
> Nalsanity:
>
> When foreign countries look at our 'debt', they don't just look at
> the CURRENT debt. What they really analyze is our future liabilities.
> This includes medicine, social security, etc. Don't forget that Social
> Security is the biggest Ponzi scheme ever devised. When it was created
> we had a lot of children and very few older people, now however,
> the pyramid is upside down. ALL OF THE MONEY HAS ALREADY BEEN SPENT.
> Ask David Walker or watch I.O.U.S.A.
>
> Depending on who you ask our future liabilities are $50-70 TRILLION
> which will have to be paid in the next 20-30 years. I've never heard
> a rational explanation by any politician how we're going to square
> things up.
>
> Furthermore, it's a bit simplistic to just look at a debt/GDP ratio
> when we're an economic giant among midgets. Try looking at a debt
> to world GDP ratio to understand the scale of the issue.
>
> The clock is ticking.... Are YOU ready?
>
> www.youtube.com/watch?...
>
> On Aug 08 12:53 PM Nelsanity wrote:
On Aug 08 02:50 PM yellowhoard wrote:
> The solution to the social security problem is to kill the elderly.
"Soylent Green is...money!"
Japan owes more than the U.S. as a portion of GDP, which means they will have a harder time paying it off. The fact that Japanese debt is more domestic just means that those who loaned the government money are going to get it back, by having the govt spend less on them, raise their taxes, and/or devalue their currency.
On Aug 08 03:27 PM Nelsanity wrote:
> I don't see how Japan's debt being more domestically owned than U.S.
> debt as has any relevance. All that changes is who is at stake to
> lose. The debt / gdp ratio is basically a quickfire number which
> shows a how difficult a time a government will have in paying back
> it's loans. They can only do it 3 ways, cut spending and funnel
> more money to paying it off, raise taxes, and/or print money. In
> the U.S. we seem to be going with option 2 and 3.
>
> Japan owes more than the U.S. as a portion of GDP, which means they
> will have a harder time paying it off. The fact that Japanese debt
> is more domestic just means that those who loaned the government
> money are going to get it back, by having the govt spend less on
> them, raise their taxes, and/or devalue their currency.
Will he get out of the primary process to run against Dodd in a general election? I seriously doubt it. The Republicans already have a strong challenger in Simmons who is leading Dodd in the polls. Running the unknown Schiff against Dodd would hand a very winnable seat to the Dems.
If Schiff ran independent it again would be bad news to the Republicans because it could detract from Simmons' chances.
On Aug 08 03:33 PM Mark Bern wrote:
> Because of the money and the political machines, Schiff may not be
> able to capture a Senate seat. However, if the market turns south
> again and the economy get worse before the election, then all bets
> are off! If the incumbant is perceived as having made things worse
> rather than having fixed the problems voters will be more likely
> to give him/her the boot. Even if things worsen between now and
> the election, Peter will still have his work cut out for him. He
> needs help, but I think the economy is likely to oblige him and fall
> once more off the proverbial cliff. For that reason, I believe he
> may have a chance. Because I think that he would be a much more
> positive force for the good of the country than Dodd, I'd like to
> see him win.
I am doubly comforted by the herd that 'thumbs down' the "obviously" wrong frame I am referencing. I will gladly make book that the dollar strengthens over the near to intermediate term, long before QE and fiscal stim reverse the disinflationary/deflat... tide we are currently witnessing in credit, shares, commodities and RE.
QE and fiscal stim will not remedy the already burst dike of excess credit creation over the past few decades. Insolvency alone will see to that. This is why I suggest the deflationary trend has quite a while to proceed prior to inflation or hyper inflation rearing their ugly heads. Just sayin...
I think most of us can agree that America overspends. This overspending allows all the other excesses within the financial system, including loose credit for individuals / homeowners. We really have Alan Greenspan to thank for all of that. So far, I don't have any problem with Schiff or others that make these arguments (Jim Rogers, for example).
But to continue and exaggerate that argument to the point of economic and governmental collapse is really quite foolish. As you correctly point out, other nations that hold our debt are in this with us. China and India, along with the rest of Asia, need us to buy their manufactured goods and put their people to work. They are the enablers and have a huge financial stake in whatever resolution occurs. I personally believe the situation will be resolved as it was in the 1980 debt with Japan: China will come to America and buy up assets to recirculate all the dollars it holds.
This is a much better outcome for both China and America. The dollars are recirculated back into the American economy, into productive uses, including American manufacturing. This is much better than China just buying securities that allow for wild speculation by investment bankers (proverbial "shadow banking system"). Once China, and other creditor nations, buy American assets, they have a vested interest in changing the fiscal policies in American government. They can do this through diplomacy and/or lobbying. Business and asset owners in America have a lot of influence on the Congressional process. The foreign nationals who own our assets will make sure to use that influence to stabilize the economy.
This is our future. It is different than many think of it. But it is not so different than our past. In the 1990s, Japan moved manufacturing jobs to America. I believe Chinese and Indian companies will do this within the next 20 years. This will help reinvest dollar holdings. Our economy and government has long been influenced by our European trading partners and those same partners own a large stake in America. So, past is prologue and the balance of trade will get resolved without the disaster forecast by people like Peter Schiff.
On Aug 08 12:18 PM puravidavid@yahoo.com wrote:
> It's difficult to make a case for the dollar's coming collapse when
> it seems the US has become a sufficiently gargantuan debtor to have
> earned the grandest example of "too big to fail." What large investor
> (China, Japan, Britian, et. al.,) would destroy the value of one
> of their largest holdings (dollar denomenated bonds, bills and notes)
> by selling and devaluing their remaining assets? Most central bankers
> resist financial suicide.
>
> Shiff misses the point of much of the current QE and fiscal stim:
> plugging the holes in the monetary dike. The lions' share of the
> money supply is credit and it continues to contract, along with velocity.
> This is one reason why inflation remains a fear of the herd, but
> doesn't show up in reality... and won't for quite some time as the
> deleveraging continues unabated.
I think most of us can agree that America overspends. This overspending allows all the other excesses within the financial system, including loose credit for individuals / homeowners. We really have Alan Greenspan to thank for all of that. So far, I don't have any problem with Schiff or others that make these arguments (Jim Rogers, for example).
But to continue and exaggerate that argument to the point of economic and governmental collapse is really quite foolish. As you correctly point out, other nations that hold our debt are in this with us. China and India, along with the rest of Asia, need us to buy their manufactured goods and put their people to work. They are the enablers and have a huge financial stake in whatever resolution occurs. I personally believe the situation will be resolved as it was in the 1980 debt with Japan: China will come to America and buy up assets to recirculate all the dollars it holds.
This is a much better outcome for both China and America. The dollars are recirculated back into the American economy, into productive uses, including American manufacturing. This is much better than China just buying securities that allow for wild speculation by investment bankers (proverbial "shadow banking system"). Once China, and other creditor nations, buy American assets, they have a vested interest in changing the fiscal policies in American government. They can do this through diplomacy and/or lobbying. Business and asset owners in America have a lot of influence on the Congressional process. The foreign nationals who own our assets will make sure to use that influence to stabilize the economy.
This is our future. It is different than many think of it. But it is not so different than our past. In the 1990s, Japan moved manufacturing jobs to America. I believe Chinese and Indian companies will do this within the next 20 years. This will help reinvest dollar holdings. Our economy and government has long been influenced by our European trading partners and those same partners own a large stake in America. So, past is prologue and the balance of trade will get resolved without the disaster forecast by people like Peter Schiff.
On Aug 08 12:18 PM puravidavid@yahoo.com wrote:
> It's difficult to make a case for the dollar's coming collapse when
> it seems the US has become a sufficiently gargantuan debtor to have
> earned the grandest example of "too big to fail." What large investor
> (China, Japan, Britian, et. al.,) would destroy the value of one
> of their largest holdings (dollar denomenated bonds, bills and notes)
> by selling and devaluing their remaining assets? Most central bankers
> resist financial suicide.
>
> Shiff misses the point of much of the current QE and fiscal stim:
> plugging the holes in the monetary dike. The lions' share of the
> money supply is credit and it continues to contract, along with velocity.
> This is one reason why inflation remains a fear of the herd, but
> doesn't show up in reality... and won't for quite some time as the
> deleveraging continues unabated.
"The solution to the social security problem is to kill the elderly."
Comments Palinesque in their density.
OK, it is always dangerous to tell the truth.
On Aug 08 07:21 PM Brian McMorris wrote:
> ...I personally believe the situation will be resolved as it was in the
> 1980 debt with Japan: China will come to America and buy up assets
> to recirculate all the dollars it holds.
>
> This is a much better outcome for both China and America. The dollars
> are recirculated back into the American economy, into productive
> uses, including American manufacturing. This is much better than
> China just buying securities that allow for wild speculation by investment
> bankers (proverbial "shadow banking system"). Once China, and other
> creditor nations, buy American assets, they have a vested interest
> in changing the fiscal policies in American government. They can
> do this through diplomacy and/or lobbying. Business and asset owners
> in America have a lot of influence on the Congressional process.
> The foreign nationals who own our assets will make sure to use that
> influence to stabilize the economy.
>
> This is our future. It is different than many think of it. But it
> is not so different than our past. In the 1990s, Japan moved manufacturing
> jobs to America. I believe Chinese and Indian companies will do this
> within the next 20 years. This will help reinvest dollar holdings.
> Our economy and government has long been influenced by our European
> trading partners and those same partners own a large stake in America.
> So, past is prologue and the balance of trade will get resolved without
> the disaster forecast by people like Peter Schiff.
On top of that, it is a fresh voice that has demonstrated the speaker is willing to stand against the crowd on multiple occasions, teleprompter or no teleprompter; irrespective whether right or wrong, and that is refreshing.
Will it make a difference? Even with my the donation, I don't know, because its the wrong state so I can't vote.
But it can't hurt. So few of the elected now remember their country!
This helps explain why his dad is a special case in the health care debate. Long live independent thought, free speech and Irwin Schiff.
I wish Peter the best too, but I'm not sure if the best is for him to become a Senator.
www.youtube.com/watch?...
Schiff is entertaining but an idiot. Dodd is a criminal.
So when do my foreign currencies start to go up "significantly?" I mean big time, not just minor fluctuations. Is there a way to take your prediction of a "catastrophic collapse in the dollar" (I know it's not just yours) and actually put a numerical analysis on it so you are pretty confident that given the current course of events, if nothing changes in the current Fed/Treasury policies and trends that by 20xx the dollar will surely be worth less than half of its current value compared to certain other countries?
And if this scenario is so likely, why do the Chinese continue to fix the Yuan to the dollar? I'm guessing the answer is that their ability to buy goods to import is not worth nearly as much as their ability to export cheap goods and if the dollar is cheap then they'll come out ahead.
Why doesn't Shiff put his money where his mouth is - rather than run for senate start a manufacturing business?
Now most things are made in China with cheap labor.
Then our dear president bush got us into the Iraq war and as
Perot says, do you hear the big SUCKING sound, money going out
and none coming in. Then the bankers took many to the cleaners.
Now that jobs are in China with low wages do you really expect them to come back with our unions trying to increase wages?
One thing in the world is constant and that is money supplies will always increase. Money supplies increase because population increases and so does the demand for credit and capital.
The whole thing is a balancing act that is nicely controlled by capitalism.
In my short lifetime of 62 years I have watched the dollars ups and downs and the world is little changed because of it. We still consume and the underdeveloped nations still produce.
Most of the people in manufacturing countries can not afford to purchase the product they are making so that leaves the good ole USA as the consumer.
The manufacturing countries love the dollar because it raises their standard of living. These countries buy our debt because it becomes the support for their currencies We have to create more dollars because that is what the world wants.
In life perception trumps reality.
Government involvement in the US economy seems moderately incompetent and corrupt, but mainly as it involves, as in the current health care debate, private interests which exert and maintain influence through what are ethically squalid but otherwise legal democratic proceedures. AFAIK, Mr. Schiff has no insight or policy other than to starve the beast, which would pit that subset of activist taxpayers not glued to the government tit one way or another against those who are. How's that workin' out for ya? World market forces should over time continue to undercut domestic labor rates, and the dollar and its denizens will be poorer than they were, relatively speaking and hedonics aside. The popular political reflex will likely as not be protectonism (again), probably not Mr. Schiffs prefered policy but one me might adopt in hopes of re-election and just to "get us back on our feet".
I'm no expert, but it's always seemed to me that the Austrian's critique of central planning was ill suited to a technological era when ideas and information, even when embodied temporarily as intellectual property, are so broadly impactful, generally relying on the cultural rather than economic medium of transmission. What would you call a society organized to inform and motivate its' citizens and partners toward national and worldwide, mutally optimal personal and collective outcomes, even if it required proactive social and economic coordination through technology, especially informatics? Six Sigma? If the US and its' current brand of capitalism is so smart, why is the US broke and its' population fat and ignorant?
1. Simply looking at the CURRENT national debt will not suffice. One must also look at FUTURE entitlements. That's one of the biggest deciding factors when a foreign country buys our debt. Now listen up.... WE CANNOT PAY IT. I mean I guess if someone perfects cold fusion all these problems could go away, but I wouldn't bet on it.
2. Obama didn't create all these debts. Again, listen up: There is no material difference between our two parties. PERIOD. They flash a random social issue in front of us here and there but overall, when the dust settles our leadership drives the same car, down the same road and just simply switch drivers.
On Aug 08 01:45 PM Nelsanity wrote:
> aNewEraBegins:
>
> I think if you read my short post you see that we agree. Not sure
> why are you trying to tell me things I said in fewer words. I dunno,
> did I not come across that way?
>
> here's some of what i wrote:
> "yes we do issue lots of debt and there is only so much the world
> can absorb especially in such a short amount of time"
> "What people need to focus on are the bogus entitlements that Obama
> is creating which will balloon our debt / GDP ratio to similar levels
> as the countries just mentioned."
Walmart, HP, Apple, even JP morgan is building a Trading strategy center in India. Not in USA. I mean, no one cares building a serious business center in US.
Low Taxes for the rich did not helped, it only helped to increase the debt and help them to do business in out source the needs of this country.
Strange. If you go to two doctors, one doctor gives your the right prognosis and the other gives the wrong prognosis. When you are sick again, would you go back the doctor who was right and the one who was wrong?
Go Peter Go!
Peter for Senate!
Here, there will be need to be a national industrial strategy. It will need to include a totally revamped education system with a much greater emphasis on engineering with math, science and foreign languages and cultures, emphasis on product quality, creating cachet (means having to hire a lot Italian industrial designers first), much more automation in the factories and more people involved in continuous design and marketing (I'm talking here of not only large companies but small and medium sized companies) and the end of the common American corporate attitude:
"I'll try exporting now until the domestic economy picks up again."
And in the end, creating tarriffs to keep out cheap goods from China. OK, I know you don';t like the word "tariff" so we will call it a VAT, make it 20% on imported goods, and exempt exported, Made in USA products. Just like in Germany.
enginOn Aug 09 09:52 AM gdclarke wrote:
> So how do we move from a service economy back to a production economy?
> For the sake of argument, there say there are two models for a production
> based economy: China and Germany. Which model would Shiff choose?
>
>
> Why doesn't Shiff put his money where his mouth is - rather than
> run for senate start a manufacturing business?
Peter would have more credibility with me if he sounded less like a politician when addressing the issue as to why his management clients didn't fare better last year considering the accuracy of his economic insights.
> Why do smart people walk away from the poker table when they're up?
You incorrectly assume someone in this poker game is up or down. The chips you may walk away with will lose value by the fact that you've walked away with no other game in town.
NormK: Great question.
This is THE question that is bugging me lately: When does the U.S. dollar crack? What is the catalyst?
Is it debt/GDP? You could argue that the U.S. could support a national debt of 200% of GDP. After all, Japan does, and its interest rates are low. But Japan recycles its savings and most of its debtholders are domestic. Thus, a "run on the bank" is unlikely. Therefore, I think that the debt/GDP ratio is not likely to break the buck.
What about "flight to safety"? This has been the saving grace of the U.S. dollar for decades as the global reserve currency. Not only does America support the global economy by importing from everyone, but we also have a global economy that is 10x bigger than China, and almost as big as the entire Eurozone combined. Therefore, I think we will enjoy the "flight to safety" for the next 12-18 months.
OK, I've been procrastinating. I think the U.S. dollar will crack when UK debt is downgraded, spurring a re-evaluation of our debt capacity. This will cause a rise in U.S. interest rates, and a snowball effect: Rising rates will make the deficit grow even larger, especially if this is combined with fear about our Medicare and Social Security disasters. Even without a collapse in the dollar, we face eroding value in the USD that will exacerbate inflation (lag effects of today's easy money and bulging deficits).
Before a complete collapse, however, the U.S. will fight like crazy to defend the dollar, since this is what Americans will demand of our politicians. This period will get very ugly, with nationalistic overtones, especially regarding China. But defense of the dollar will ultimately fail, since even the U.S. cannot defy the laws of supply and demand (just as the Bank of England failed against the assaults of George Soros).
Ultimately, THE catalyst will be a crisis of confidence. This is notoriously hard to predict, so I am watching: Gold and oil (fungible global commodities), global interest rates, the trade deficit, and the value of the dollar vs. major partners.
Norm, after the collapse of Lehman, Fannie, Freddie, and AIG, we HAVE to think about the unthinkable. A crisis of confidence can emerge very rapidly, and it will feed on itself. The key is to watch for the signs, and to act fast when you see the dollar start to wobble.
Great question. I hope I answered it.
Rob
On Aug 09 09:24 AM NormK wrote:
> re: Robert Martorana:
> So when do my foreign currencies start to go up "significantly?"
> I mean big time, not just minor fluctuations. Is there a way to
> take your prediction of a "catastrophic collapse in the dollar" (I
> know it's not just yours) and actually put a numerical analysis on
> it so you are pretty confident that given the current course of events,
> if nothing changes in the current Fed/Treasury policies and trends
> that by 20xx the dollar will surely be worth less than half of its
> current value compared to certain other countries?
>
> And if this scenario is so likely, why do the Chinese continue to
> fix the Yuan to the dollar? I'm guessing the answer is that their
> ability to buy goods to import is not worth nearly as much as their
> ability to export cheap goods and if the dollar is cheap then they'll
> come out ahead.
The flight will increase faster if Cap and Trade is imposed and additional tax burdens on businesses are passed in the various governmental levels.
And yes, Dodd is a criminal, along with his buddy, Barney Frank. And both should be prosecuted.
On Aug 09 08:55 AM CLH wrote:
> Dodd or schiff? What a choice. Both consider the govt. the answer
> to our problems. We are in a normal correction which was needed.
> The best thing the govt. can do is butt out. Schiff has been wrong
> from the beginning. His belief that the US is finished and inflation
> will end the dollar as money have been wrong like most things he
> says.
>
> Schiff is entertaining but an idiot. Dodd is a criminal.
And, yes, because I find our economic situation just a fact of life, and nothing to cry about, I try to find the best investments for the times, and oil / materials are in my portfolio.
On Aug 09 10:34 AM long_on_oil wrote:
> The super rich play currencies like the rich play the stock market.
> You can bet all currencies of the world will be kept in line by these
> big players. If the dollar gets out of hand via the euro then more
> euros will be issued or the United States will once again see manufacturing
> increase due to the low dollar. The low dollar encourages production
> in the United States.
> One thing in the world is constant and that is money supplies will
> always increase. Money supplies increase because population increases
> and so does the demand for credit and capital.
> The whole thing is a balancing act that is nicely controlled by capitalism.
>
> In my short lifetime of 62 years I have watched the dollars ups and
> downs and the world is little changed because of it. We still consume
> and the underdeveloped nations still produce.
> Most of the people in manufacturing countries can not afford to purchase
> the product they are making so that leaves the good ole USA as the
> consumer.
> The manufacturing countries love the dollar because it raises their
> standard of living. These countries buy our debt because it becomes
> the support for their currencies We have to create more dollars because
> that is what the world wants.
> In life perception trumps reality.
"But defense of the dollar will ultimately fail, since even the U.S. cannot defy the laws of supply and demand (just as the Bank of England failed against the assaults of George Soros)."
In your arguments, you undermine your case. Yes, George Soros was able to precipitate a temporary run on the British pound and did very well for himself in the process. But, have you noticed? England is still a sovereign government. And further, their currency isn't all too much different now vs. other world currencies than it was before Soros.
You and others make the mistake of extrapolating short term imbalances and weakenesses into long term failure. Currencies are all fiat and based on their underlying economies. Sure, as other countries gain economic strength (as we all hope they will), their currencies will strengthen against the Dollar and other Western currencies (Euro, Pound, etc). So what! This will just mean they will lose their low labor cost advantages over time, just as Japan has lost that advantage in the past 30 years.
This is economic evolution and nothing to be feared.
Again I say, good luck to you and your gold.
On Aug 09 03:26 PM Robert Martorana wrote:
>
> NormK: Great question.
>
> This is THE question that is bugging me lately: When does the U.S.
> dollar crack? What is the catalyst?
>
> Is it debt/GDP? You could argue that the U.S. could support a national
> debt of 200% of GDP. After all, Japan does, and its interest rates
> are low. But Japan recycles its savings and most of its debtholders
> are domestic. Thus, a "run on the bank" is unlikely. Therefore, I
> think that the debt/GDP ratio is not likely to break the buck.<br/>
>
> What about "flight to safety"? This has been the saving grace of
> the U.S. dollar for decades as the global reserve currency. Not only
> does America support the global economy by importing from everyone,
> but we also have a global economy that is 10x bigger than China,
> and almost as big as the entire Eurozone combined. Therefore, I think
> we will enjoy the "flight to safety" for the next 12-18 months.<br/>
>
> OK, I've been procrastinating. I think the U.S. dollar will crack
> when UK debt is downgraded, spurring a re-evaluation of our debt
> capacity. This will cause a rise in U.S. interest rates, and a snowball
> effect: Rising rates will make the deficit grow even larger, especially
> if this is combined with fear about our Medicare and Social Security
> disasters. Even without a collapse in the dollar, we face eroding
> value in the USD that will exacerbate inflation (lag effects of today's
> easy money and bulging deficits).
>
> Before a complete collapse, however, the U.S. will fight like crazy
> to defend the dollar, since this is what Americans will demand of
> our politicians. This period will get very ugly, with nationalistic
> overtones, especially regarding China. But defense of the dollar
> will ultimately fail, since even the U.S. cannot defy the laws of
> supply and demand (just as the Bank of England failed against the
> assaults of George Soros).
>
> Ultimately, THE catalyst will be a crisis of confidence. This is
> notoriously hard to predict, so I am watching: Gold and oil (fungible
> global commodities), global interest rates, the trade deficit, and
> the value of the dollar vs. major partners.
>
> Norm, after the collapse of Lehman, Fannie, Freddie, and AIG, we
> HAVE to think about the unthinkable. A crisis of confidence can emerge
> very rapidly, and it will feed on itself. The key is to watch for
> the signs, and to act fast when you see the dollar start to wobble.
>
>
> Great question. I hope I answered it.
>
> Rob
China and Japan really are similar in this way. So, I think we can look to our experience with Japan to guide how we work with China. There are huge differences for sure (China has huge land mass, varying cultures within its borders, rich in natural resources, 15X the population, etc). But what both economies have in common is the need for external consumers to pull up their economy through export.
How does America respond? I think we too need some degree of industrial policy and central coordination in key industries like autos, aerospace (already coordinated), electronics, finance and medicine. Defense technologies goes without saying. Over time, the playing field will be leveled. It is in our national and humanitarian interests to have lower per capita income countries become elevated. We never seem to have the need for warfare with developed economies. It is only the less developed economies, who feel they have been exploited, that seek war to even the score. Same goes for terrorism. When was the last time we had to deal with French or Australian terrorists?
People should understand, like you do, that fiat currency represents the productive capacity and assets of the nation that issues that currency. America is not going away. Our national assets are fixed. The only thing that printing money does is make those assets equal to a larger number of dollars (devalues dollars).
And here is where the mindless hoards really miss the point: when the country is faced with a massive Deflation (who can deny that houses and labor are worth less today than last year) due to a massive financial panic, a global psychological reaction, the best thing to do is Reflate the dollar back to where it was. This should pull the value of all those assets back closer to where they were and solve most of the credit problem. It is really simple math.
But if you are drinking the Schiff / Roubini Koolaid, you can't think such simple thoughts and must instead come up with apocalytic scenarios. And you might even have your net worth in silver and gold, which of course, might influence how you argue this point.
Keep up the good fight. But know that it is always the contrarians who win at the game of investing.
On Aug 08 12:18 PM puravidavid@yahoo.com wrote:
> It's difficult to make a case for the dollar's coming collapse when
> it seems the US has become a sufficiently gargantuan debtor to have
> earned the grandest example of "too big to fail." What large investor
> (China, Japan, Britian, et. al.,) would destroy the value of one
> of their largest holdings (dollar denomenated bonds, bills and notes)
> by selling and devaluing their remaining assets? Most central bankers
> resist financial suicide.
>
> Shiff misses the point of much of the current QE and fiscal stim:
> plugging the holes in the monetary dike. The lions' share of the
> money supply is credit and it continues to contract, along with velocity.
> This is one reason why inflation remains a fear of the herd, but
> doesn't show up in reality... and won't for quite some time as the
> deleveraging continues unabated.
Schiff-o-nomics is much more reality based than Barack Millhouse Thug-o-nomics.
On Aug 09 08:51 PM Brian McMorris wrote:
> Boxed Merlot: thank you for the thoughtful comments.
> We never seem
> to have the need for warfare with developed economies. It is only
> the less developed economies, who feel they have been exploited,
> that seek war to even the score. Same goes for terrorism. When was
> the last time we had to deal with French or Australian terrorists?
Thanks for the response. I recently posted a couple of responses to Bob Mcteer who I didn’t know at the time was a former head of Dallas Fed Reserve, but is currently on the board for an Ichaan bank with TX and CA offices currently on the ropes. I was a bit disrespectful unfortunately, but feel nonetheless the Japanese of 1980 are different from the Chicom of 2009. It could be my age as I doubt my children feel the same. Probably like my folks or father-in-law felt warm and fuzzy towards the Japanese in 1980. Perhaps the Chicom of 2009 are more free enterprise minded than what I’ve been led to believe earlier in my life. I certainly hope so. But I digress. Anyway, it doesn’t seem a far stretch to me to see our gov’t make some middle of the night, (a la GS traitor) arrangement with Chicom inc. to allow a more direct ownership of assets in financial institutions in exchange for reducing some of our $2 trillion debt. How can they refuse? They’d be paying for it our own money for heaven’s sakes! Interesting times.
(By the way, how does Germany fit in your comment above?)
As a person nearing elderly status... I think pehaps when the time arrives I might take it upon myself to kill myself, that could be my perogative if I am in desperate pain and sucking money and energy from my family, they system and my spirit. SO the idea that "killing the elderly" is a real problem is just fear and victim whining. It is as if the elderly have never had any brains and never will. They have made alot of decisions....they are not pawns or robots.....let them decide instead of using them as pitiful victims. That is insulting to me and any elderly person who doesn't enjoy being a victim.
We don't seem to raise a cry when we are killing the young in the strangely weird war in Iraq that had less than zero to do with 9-11. Saddam Hussein and Osama Bin Laden despised one another so they were not partners in that attack. It was proven to be Osama and his gang.....so we have stuffed billions down a rat hole to kill Saddam and take over Iraq? Does that not make the head of any thinking person with an IQ above 90 spin round and round? Wow, here is my point, if you don't identify the real problem you cannot resolve it no matter how much money and dead soldiers or imaginary dead grandma's you throw at it. So, how did those billions of dollars wasted affect the foundations of our economy? How has the looting of the bankers and places like Goldman Sachs andAig,that we have witnessed first hand, affected the economy? Is 5 million an excessive bonus? ( I'd like to have that,throughout my life I may have earned it, but is it excessive compared to what others make in their same 40-60 hour work week? I think so) Could Dodd have pocketed that much money? Did Eric Prince of Blackwater pocket pocket more or less that Dodd? Are we defending these people at our own expense? At the expense of reality?
Put each problem on the scale of justice and compare. Does the more-than-likely-imagined fear that we will kill old people or sick children really outweigh the actual reality?....Old people have medicare at the age of 65 then they become the dreaded socialist (I can hardly wait it will save my more than 30% of my monthly outgo).....what do families do who have lost their jobs, or families who have not enough income to pay for healthcare despite working full time? Let's take a nice healthy $4000. family income and look at REALITY (sorry if that is painful for those who like to tilt at false problems...look out windmills).....Auto payment..$250 mo., Auto Ins...$70 mo.,House payment or rent..$1000 mo., Home ins..$80 mo., groceries for average family of 5..$400. mo.,clothing and shoes etc allowance $200. mo., RX and toothpaste deodorant toilet paper aspirin etc., $100., minor amount of entertainment...$100. mo., cleaning supplies $25., Utilities(phone, cable, internet, natural gas or propane, elec, water, garbage....$300. mo., gasoline and auto repair and maintenance.....$250 mo, health insurance...$600.
For anyone who keeps actual track of what they spend, you will know that this is only the bare minimum. I haven't added this on my adding machine but I'm certain we are now over $3000.
Is Medicare socialism to those who rely on it? If you will notice most of those people screaming about socialism are shamelessly and,may I add with a bit of judgement....ignorantly putting those socialist dollars into their pockets. Could these families use $600. a month...would that add to their FAMILY VALUE?
Could a small business use an increase of $600 per employee if they didn't have to buy health insurance for them? I know that would've helped me in my small business.
I grew up in the military......we had PAID healthcare just like the senators and representatives.....it certainly increased how far our meager paychecks went. Is any congress person who accepts this Larghesse a socialist?? Are our soldiers socialists? Are people on Medicare socialists?
Is it a problem to be solved that one who receives benefits is deserving and one who wants to receive benefits is a socialist.? What would that be called? In the counseling office we call it greed, selfishness, narcissism, denial, thought disorder and more.
I, for one, do not want to be ruled by people with selfish thought disorders. Let's look at the real problems, not the immature emotional feces slinging. If the real problems were resolved I have no doubt that we all would benefit. When working with couples, when the real problems are resolved, they are rewarded as individuals and collectively as a coupe and as parents. They make more money, they are healthier, they have more fun. Could we stop wasting our health, time and money on made up, fantasy, getting on someone else's bandwagon problems and solve the real ones for our sake and maybe even for God's sake !?
Woodduck
Is it simple minded to think that monetary metals like gold and silver might retain their value better than fiat money, which can be created out of thin air?
You seem to understand that creating currency out of thin air devalues that currency and that this helps debtors. But you ignore the fact that doing this hurts holders and creditors of that currency.
When new money is created out of thin air, some people are helped, but others are hurt. Saving and lending are discouraged, while borrowing and spending is encouraged.
Is this what we want? Will this lead to a sustainable economy?
On Aug 09 09:20 PM Brian McMorris wrote:
> Puravi...you make sensible, well informed comments that reflect reality.
> But all the "goldheads" visiting this site can only spout their blind
> faith in colored dirt. I have no idea why people think gold and
> silver are their salvation. Are they all zombies?
>
> People should understand, like you do, that fiat currency represents
> the productive capacity and assets of the nation that issues that
> currency. America is not going away. Our national assets are fixed.
> The only thing that printing money does is make those assets equal
> to a larger number of dollars (devalues dollars).
>
> And here is where the mindless hoards really miss the point: when
> the country is faced with a massive Deflation (who can deny that
> houses and labor are worth less today than last year) due to a massive
> financial panic, a global psychological reaction, the best thing
> to do is Reflate the dollar back to where it was. This should pull
> the value of all those assets back closer to where they were and
> solve most of the credit problem. It is really simple math.
>
> But if you are drinking the Schiff / Roubini Koolaid, you can't think
> such simple thoughts and must instead come up with apocalytic scenarios.
> And you might even have your net worth in silver and gold, which
> of course, might influence how you argue this point.
>
> Keep up the good fight. But know that it is always the contrarians
> who win at the game of investing.
The GDP of the US, however is 'service' oriented and reflects money going round and round within the US, ie the US does not have the ability to repay it's debt.
The difference is fine tuning of treatment: not EZ in DT's, perhaps impossible to do well in macroeconomics with tens of millions of binged-out credit drunks! Make no mistake, though, providing credit in the initial treatment round was and will continue to be essential to prevent (economic) death as by symptoms similar to the "Great Depression". Now though, as in the ER, we have to subplant the "EtOH" with alternative measures. THE most critical step therein is the expedient but judicious direction of (TARP etc) money selectively to economic incentives with short and long term payback!
Think SMALL businesses that create the most of the (good) jobs or transportation projects on roads, tracks, water/airways, pipe/power grids etc, many of them overdue, that will keep going and going like the Energizers. That part of BB's liquidity (EtOH) infusion, even to the tune of trillions, will pay for itself short plus long term with hugh compound interest. You don't even have to fine tune the the amounts too much if the investments are chosen right for their economic (not political) merrits. And they actually will make us come out stronger from this near death recession experience (Wrigley's B.I.O.N!)
BUT ARE WE FOCUSING ENOUGH ON THE RIGHT INVESTMENTS AND MINIMIZING THE WRONG ONES?
On Aug 08 12:02 PM Robert Martorana wrote:
> Kudos to Peter.
>
> The ballooning deficit is an even bigger problem than quantitative
> easing by the Fed. At some point, the Fed will be able to reverse
> course and unwind the monetary stimulus. Counter-cyclical monetary
> policy makes sense from a Keynesian perspective, and the Fed will
> be able to withdraw liquidity without partisan bickering over minutia
> (whether the Fed WILL withdraw liquidity at the right time is another
> question entirely).
>
> But counter-cyclical fiscal policy is notoriously difficult to unwind.
> Once a government program is in place, it takes on a life of its
> own. That's why long-term government programs are a terrible way
> to fight a recession--any recession.
>
> Peter Schiff points out the core of the problem: The U.S. is addicted
> to debt. We "solved" the tech bubble with easy money that created
> the housing bubble. Now we are "solving" the housing bubble with
> even more cheap money. Today's massive monetary and fiscal stimulus
> is creating the "Mother of All Asset Bubbles". You don't help a drunk
> by giving him another drink.
>
> Peter focuses rightly on our trade deficit. We simply cannot consume
> without producing, and we need to restore competitiveness. The U.S.
> has been getting away with massive Treasury issuance because the
> dollar is THE global reserve currency, so it benefits from a flight
> to quality during times of stress. But as the U.S. government loses
> its creditworthiness, we risk a catastrophic collapse in the dollar.
> Even without a collapse, we will certainly face a weaker dollar.
> This will lead to higher import prices and higher inflation. A weak
> dollar only exacerbates the inflationary pressures created by massive
> monetary and fiscal stimulus.
>
> As for healthcare, this is a perfect example of fiscal stimulus that
> does NOT fight a recession. We are drowning in debt, and we need
> reform that does not add $1 trillion to the deficit. I believe that
> we need a safety net for the weakest members of society, and this
> should be a spending priority. But we should not kid ourselves that
> healthcare spending will fight the recession. It merely creates a
> long-term program that will be impossible to cut back once people
> get accustomed to the benefits.
>
> We need healthcare reform in the context of a balanced budget. Otherwise,
> we will put debt on the backs of our children for generations to
> come.
>
> Thanks Peter.
When the Japanese government incurs deficit, it is borrowing money from the savings of its citizens - who has one of the highest savings rate in the world.
When the Chinese government spends money to stimulate its economy, it can easily use money from its reserves or from the savings of its citizens..
When the US government needs money, it borrows from the rest of the world, mainly China, Japan and Saudi Arabia.
On Aug 10 11:40 AM Bjarne Jensen wrote:
> Japan can afford a high Debt/GDP because it manufactures items the
> rest of the world values, ie Japan has the means to repay it's debt.
>
>
> The GDP of the US, however is 'service' oriented and reflects money
> going round and round within the US, ie the US does not have the
> ability to repay it's debt.
Advisors and comedians have much in common... Timing!
Will Schiff or Rogers be wrong if the Titanic sinks on the third voyage?
On Aug 09 09:24 AM NormK wrote:
> re: Robert Martorana:
> So when do my foreign currencies start to go up "significantly?"
> I mean big time, not just minor fluctuations. Is there a way to
> take your prediction of a "catastrophic collapse in the dollar" (I
> know it's not just yours) and actually put a numerical analysis on
> it so you are pretty confident that given the current course of events,
> if nothing changes in the current Fed/Treasury policies and trends
> that by 20xx the dollar will surely be worth less than half of its
> current value compared to certain other countries?
>
> And if this scenario is so likely, why do the Chinese continue to
> fix the Yuan to the dollar? I'm guessing the answer is that their
> ability to buy goods to import is not worth nearly as much as their
> ability to export cheap goods and if the dollar is cheap then they'll
> come out ahead.
Industry Total Indivs PACs
Securities & Investment $3,744,028.00 $3,573,828.00 $170,200.00
Lawyers/Law Firms $1,664,523.00 $1,546,748.00 $117,775.00
Insurance $1,187,556.00 $868,250.00 $319,306.00
Real Estate $1,108,771.00 $985,138.00 $123,633.00
Commercial Banks $764,244.00 $653,744.00 $110,500.00
Retired $621,172.00 $621,172.00 $0.00
Lobbyists $462,462.00 $458,462.00 $4,000.00
Misc Finance $395,520.00 $384,020.00 $11,500.00
Accountants $395,400.00 $362,900.00 $32,500.00
TV/Movies/Music $388,620.00 $373,120.00 $15,500.00
Business Services $315,375.00 $311,375.00 $4,000.00
Democratic/Liberal $293,404.00 $287,404.00 $6,000.00
Finance/Credit Companies $265,450.00 $184,750.00 $80,700.00
Health Professionals $248,450.00 $201,300.00 $47,150.00
Defense Aerospace $221,350.00 $206,850.00 $14,500.00
Education $190,266.00 $187,766.00 $2,500.00
Misc Manufacturing & Distributing $181,350.00 $160,350.00 $21,000.00
Pharmaceuticals/Health Products $173,400.00 $107,100.00 $66,300.00
Misc Business $164,195.00 $164,195.00 $0.00
Printing & Publishing $118,850.00 $117,850.00 $1,000.00
On Aug 09 06:08 PM Brian McMorris wrote:
> Couldn't agree more, CLH, that Schiff is an idiot, but an educated
> idiot for sure. His problem is his idealism, as problematical from
> the right as Obama's is from the left. His absolute conviction that
> America is doomed is really quite pathetic. And his belief that He
> is the only one with the right answers, lacks humility. America will
> do just fine without Schiff's supposed wisdom.
>
> And yes, Dodd is a criminal, along with his buddy, Barney Frank.
> And both should be prosecuted.
>
> On Aug 09 08:55 AM CLH wrote: