Is the party coming to an end?

I dunno. But this fellow makes some intriguing arguments.

Every time a US Dollar is traded, a check is issued on an account that is overdrawn by $8.6 trillion. (That is the present size of the national debt) It is, without question, the biggest swindle in history. Flimsy sheets of faded-green scrip are eagerly exchanged for costly goods and services without any regard for the real value of the currency.

And, the real value of the currency is absolutely nothing!

How is it that this scam persists when people appear to be aware of the massive debt and deficits which underwrite the dollar? Do they still believe in that puerile fairy tale about ‘the full faith and credit’ of the United States backing up every greenback? Or are they pacified by the wizened graybeards, like Alan Greenspan and Hank Paulson, who soothingly bray about the ‘strong dollar policy’?

What gibberish.

In truth, the dollar rests on the crumbling foundation of consumerism and oil. The American consumer’s gluttonous appetite for spending has kept the greenback flying high for decades. Economists marvel at America’s lust for electronic gadgetry, the latest fashions, and useless knick-knacks. They call our profligate spending ‘the engine for global growth’; and indeed it is. No other country in the world is nearly as addicted to binge-spending as the US consumer. As long as he can beg, borrow or steal his way into the shopping mall; the orgy of spending is bound to continue. (Consumer spending is 70% of GDP)

Regrettably, there are signs that the US consumer is beginning to buckle from the weight of personal debt. The Associated Press reported just this week that ‘people are saving at the slowest rate since the Great Depression… and the Commerce Dept stated that the nation’s personal savings rate for 2006 was a negative 1%, the worst showing in 73 years.’

Red flags are going up everywhere. China’s central bank issued a warning in December about the risks of the weakening dollar:

‘If external capital stops flowing into the US, a significant drop in the dollar may occur with consumption and investment shrinking, interest rates rising, and financial markets experiencing turbulence, endangering global financial and economic stability. There could be adjustments to how European private capital, Asian foreign exchange reserves and oil export proceeds are invested.’

Yes, of course, a complete economic meltdown with capital fleeing the United States to foreign countries and the American economy collapsing in a heap.

The Chinese central bank statement adds:

‘If the US current account deficit continues to grow faster than GDP, then the investment value of US assets may be subject to doubts and challenges and the willingness of investors to continue holding and buying US financial products may weaken. This could cause changes in capital flows, the exchange rates of major currencies, and the value of foreign exchange assets.’

The Chinese bank is giving the Bush Team a chapter out of Econ. 101: ‘If you keep spending more than you are taking in; the stock market will fall, the dollar will plummet, and the US economy will tank.’

What could be clearer than that?

The administration, however, chooses to ignore the basic laws of economics and pursue a madcap plan to wage aggressive war across the planet and pilfer the world’s oil reserves.

Much more, and some great comments as well (the one about the “Zionist-controlled media” excepted). Will America survive it? Probably, simply due to the magnitude of its wealth and power. Will we experience pain that will last for generations? I really think so. And I think the axe will fall this year. Common sense tells me the current situation is simply not sustainable, and when I see Bush going out of his way to start a war with Iran I’m more convinced than ever that the bleeding – of our treasury and our troops – will continue, and worsen.

The Discussion: 32 Comments

Sounds like the white man’s Gordan Chang. Nothing here that hasn’t been said ever since the U.S. first started talking about going off the gold standard. Richard, when did you become a John Bircher?

February 11, 2007 @ 11:10 pm | Comment

Yes, that’s me, a John Bircher!

Hey, I just find his ideas interesting, even if they’ve been said before. As I said the last time I put up a post like this, let’s check back six months and 12 months into the year and see if these predictions were alarmist or no-target. I just see what Bush is doing to our economy and to the world, and I know we will have to pay the price. If anyone things we can wage eternal warfare with no expenses spared while cutting taxes and giving the plutocracy at the top the ride of their lives, more power to them. I just believe there will have to come a time to pay the piper.

February 11, 2007 @ 11:51 pm | Comment

I agree with CLB, though after hearing years of how the Chinese banking industry was ready to implode any minute, its interesting to see an assessment claiming it will happen to the US. I think the US’ wealth and power is enough to prevent it from being that bad, but that’s assuming no new Bush wars and a Democratic president in ’08 (Obama, anyone?) who gets us out of Iraq and back on course.

February 12, 2007 @ 12:38 am | Comment

Richard, you should have read the Economist’s take on the budget.

“George Bush’s budget has scant chance of becoming law. Too bad, for it contains some good ideas.”

The Democrats might be valid in their criticisms if they were going to propose anything better. But they aren’t – indeed they might just make things even worse.

February 12, 2007 @ 6:55 am | Comment

Raj, Bush may have presented a decent budget this year, as the Economist says. He also led us into this mess, and as always, his solution includes a lot of pain for America’s poor and working people, and very little pain for the aristocrats on top.

I like to put these posts out to see other readers’ take on them. I don’t see this as a Coming Collpase of China scenario. I see it as common sense that we can’t have it both ways. I don’t think America will collapse.

February 12, 2007 @ 7:49 am | Comment

My economics mentor just emailed me the following when I asked him how Bernanke at all could allow the situation to deteriorate knowing it would be a political disaster for themselves He replied:
The G8 are all in this together and will preside over a drip, drip, drip denegration of the dollar as opposed to a crash. There are no longer any currencies backed by real assets, so they must all inflate in unison to save their respective asses. Consequently, asset (no pun intended) inflation (or rolling asset bubbles) are the order of the day. After some economic accident (probably the failure of major sub-prime lenders or hedge funds) the presses will go into overdrive to flood the economy with credit AT LOWER RATES. This will signal the final abandonment of the charade of defending the dollar … and gold/silver will soar! Ironically, the markets will also rise because of vigorous liquidity, but may not keep pace with the accompanying inflation.

So the markets may even rise while much of this is going on, or so says my friend, who is never wrong (said with some facetiousness). But the decline of the dollar is, to me, the one inevitability. Not the collapse of America. Not anarchy. The decline of the dollar. Would anyone like to place bets as to whether it is going up or down over the next 11 months? Seriously.

February 12, 2007 @ 7:56 am | Comment

What is protecting the dollar is U.S. might
both ecenomic and military.
Yes, there will be bumps in the road (for example recessions and may be housing crash) and some people will get
hurt severly but all in all the fat cats and the
dollar will be affected slightly.

February 12, 2007 @ 8:00 am | Comment

The Hong Kong and Shanghai Banking Corporation threw up a big red flag last week announcing that they were having to throw an extra US$1.8billion to cover losses due to defaults at their US mortgage section. (and this number is predicted to get larger instead of smaller as more data comes in).

As for the Economist article, it misses the forest for the trees. It’s just more drivel right-wing economics about the necessity of cutting “government entitlements” to balance the budget without discussing for a second what is actually driving higher medical entitlement spending. Makes me wonder what The Economist’s advertising revenue take from Big Pharma is each and every year. Don’t bite the hand that feeds ya.

February 12, 2007 @ 9:10 am | Comment

Correct me if I’m wrong everyone, but isn’t the deficit decreasing? That’s what I’ve been hearing lately. As far as the betting, I think I proved my point. If you look back to previous posts. A lot of people predicted the economic collapse of America. Interestingly the predictions went from imminent disaster, to disaster in 12 weeks, 6 months, 11 months, 12 months, etc. If we change the bet now to simply say that the value of the dollar will decrease sometime within the next year then that’s a much more reasonable prediction than previous alarmist predictions which were largely based on anti-bush feelings (mostly by us Americans) and anti-american feelings (mostly by people from other countries).

February 12, 2007 @ 10:07 am | Comment

I’ve softened my stance on how big a disaster it would be, because my first “stance” was in an off-the-cuff comment. I haven’t changed my position about when we should start seeing it, and most of what I said in my later posts stands verbatim.

For some, it won’t be a disaster, but for most it will be painful. My original contention as to timing stands – let’s see how the dollar is six months into the year. Then 12 months. A six-month benchmark. No changing of any goalposts. I would think the repercussions for many would be on a par with some of our worst recessions, but not as bad as the Great Depression in terms of an extended economic crisis. And still America survived the Depression, so it will certainly survive this. As I said at the very first post, let’s take a look at where the dollar is in six months. The collapse of the housing boom hasn’t even started to take its toll; that, combined with what we are doing in Iraq and Iran, will force us to continue to print money. And that can’t last forever. But we’ll see, right? Like I always said, let’s wait until six months into the year and see where we’re heading, okay? I don’t mean the stock market, either (for much of the Depression the stock market did splendidly).

Of course, if I could predict macroeconomics I’d be a billionaire today. So keep it in context – this is speculation, and a catalyst for conversation about our economy. And, as always, I am totally right.

February 12, 2007 @ 10:54 am | Comment

Here’s my formal, intractable prediction: If you bought $1 million of dollars on Jan. 1, 2007 and I bought $1 million in gold, I will be way ahead of you on July 1, 2007. This is a very scientific prediction, based on the fact – I repeat, fact – that July 1 is my birthday.

February 12, 2007 @ 11:03 am | Comment

Richard, you have a 50% chance of being right because the dollar will either decline or increase in value. It’s really unlikely that it will be the same.

I think a better prediction would be stating that the dollar would decline 10%, 20% or 30%. For the decline to be indicative of a weak American economy, it would have to be beyond a standard deviation.

I personally think that it won’t significantly decline. The economy has been growing at around 3.5% which I think is pretty decent. I also think that the currency markets have already considered the trade deficit and the housing market when they’ve valued the dollar.

February 12, 2007 @ 5:40 pm | Comment

That’s right, the dollar is always fluctuating in value.

You also have to consider that a weakened dollar might actually benefit the economy as some people are saying. I’ve heard that it could make US products more competitive. I mean isn’t that what the Chinese have been doing for years? According to the article I read in the Times, California wine makers are already taking advantage of the weakened dollar to sell more wine in Canada. Also, some are saying that the states will become a more attractive tourist destination, especially for Europeans who will be able to spend more money, much like China is good travel option for cheapos now.

Richard, why not buy 500,000 dollars of both and just play it safe?

February 12, 2007 @ 5:59 pm | Comment

Six months. Dollar down sharply, gold up big. It’s just a feeling I have, based on an accumulation of articles I’ve read and conversations I’ve held. I am not a prophet or a seer or an economist; I don’t like numbers. On this blog, I try to express what I feel, what I see and what I think. While I can’t offer a number, I can say the proportion of the dollar’s fall and of gold’s rise will be enough to say, “Damn, if I had listened to Richard then, I would be rich now.” With that in mind I cashed out of my blue chips and invested in gold the week after the New Year began. If you see what it’s done since, you might be impressed. But it’s still too early; watching the week-by-week numbers isn’t very useful, as things do fluctuate, as we all acknowledge. Anyway, let’s just sit back and watch. You might be surprised at what you’ll see, Pha. (Then again, I may have no idea what I’m talking about.)

February 12, 2007 @ 6:28 pm | Comment

Like you, Richard, I am sceptical (I think that’s the Brit/Aussie spelling) of the future of the dollar. All the fundamental indicators point toward an implosion. Fear of an economic collapse was 1/3 of my reasons for buggering out of the U.S. But I’ve been waiting for it for two years now. Hasn’t happened.

Perhaps there are macroeconomic buffering systems at work that we don’t understand, like the ones that have kept somewhat of a check on global warming even as CO2 levels rise. It still seems inevitable that the laws of financial gravity will apply to the dollar just as they applied to tech stocks during the time when Wall Street was saying “the New Economy is different!”

The U.S. is basically making dollars up out of thin air with the government and international trade deficits. The game works as long as people are willing to keep playing it; as long as OPECkers is are willing to take greenbacks for oil and the Chinese are willing to swap “things you can drop on your foot” (as The Economist puts it) for numbers in a computerised account. It’s like the biggest Ponzi scheme in the world. But they always unravel…

I’m paranoid, so I don’t trust ANY of the economic statistics coming out of the U.S. government. Not the official growth rate, not the listed budget deficit, none of it. No evidence I can point to, just a gut instinct not to believe anything these bastards say. I keep thinking back to the quote Ron Suskind got about how these Rethugs think they can create reality, and the rest of s can just react to what they ginned up. That would apply very well to most government economic stats, which cannot be verified by anyone outside the officials who create them. Enron looked profitable for a long time, and there were supposedly auditors looking over the ledgers. Who’s checking to see the U.S. govt. isn’t making up figures just as China is accused of doing?

February 13, 2007 @ 1:49 am | Comment

Richard and Bukko, the two of you are confusing American financial and American monetary policy. Two are separate and are controlled by two independent parts of the US economy. Financial policy is controlled by the Executive and Legislative branches and monetary policy is controlled by Federal Reserve Bank. The US Budget deficit is a part of American financial policy and does not directly affect the value of the dollar.

Now, you are arguing that the US budget deficit will decrease the value of the dollar. The US government funds its deficit in two ways, 1) it borrows money for the social security fund and 2) it issues US bonds. The US government does not print more money to cover the deficit. Thus an expanding deficit would not automatically result in a weaker dollar.

I also don’t see Chinese banks having to cover poor investments as a sign the dollar is going to collapse. In China, many people are already worried about poor loans Chinese banks have made in China. I think that it is likely that the same banks are making the same mistakes in the US. I haven’t heard any other reports of banks worrying about foreclosures.

Richard, I’d bet that the in 6 months, the rise in value of gold will be less than 15%. Would you take that bet?

February 13, 2007 @ 9:36 am | Comment

10 percent from Jan. 1 to July 1, and you’re on. US$50. We’ll see. Deal?

February 13, 2007 @ 10:00 am | Comment

I’d like to complicate the bet. 17% from Jan 1st to July 1st. As I work in China and don’t have many dollars, I’d like to change the bet to a dinner worth up to 400 rmb.

February 13, 2007 @ 12:21 pm | Comment

17 percent? That seems awfully steep for six months. Well, okay – why not? But even if it only goes up 10 percent or more, I still get to gloat, okay?

February 13, 2007 @ 2:02 pm | Comment

Okay, that’s fine.

February 13, 2007 @ 2:34 pm | Comment

Just a quick question. What will we use to determine the price of gold?

February 14, 2007 @ 6:43 am | Comment

Sorry to post again but it’s early in the morning and my mind is not functioning.

I’d like to comment on the article. First, I’d like to take a look at the first paragraph. “Every time a US Dollar is traded, a check is issued on an account that is overdrawn by $8.6 trillion.” This is factually wrong. As I stated before, the US funds its deficit through issuing US bonds not by printing dollars.

Second: “Regrettably, there are signs that the US consumer is beginning to buckle from the weight of personal debt. The Associated Press reported just this week that ‘people are saving at the slowest rate since the Great Depression… and the Commerce Dept stated that the nation’s personal savings rate for 2006 was a negative 1%, the worst showing in 73 years.'”

Some economist argue that the reason why the personal savings rate is lower is because the economy has transformed and that market is more efficient at distributing capital.

Finally, this paper is using the Chinese national banks as its expert. I really feel that the author of this piece came up with a conclusion and then looked for evidence to support it. It’s really not that convincing.

February 14, 2007 @ 6:57 am | Comment

Okay. We’ll see.
Let’s use the price of GLD (NYSE).

February 14, 2007 @ 8:41 am | Comment

Now, it’s getting interesting! I’m glad Richard and Kenzhu had the balls to bet on this, but I can’t place this bet because it really has nothing to do with my original point. Of course, the value of the dollar is going to fluctuate, but that doesn’t mean total chaos and collapse. What about all you others out there who predicted “the collapse of America”. Did you change your mind already?

February 14, 2007 @ 10:26 am | Comment

If you are using quote marks like that, Pha, you have to provide a link too. Who said the US would “collapse”? Maybe someone did, but I never read that. I myself said, in the Closed for Xmas post, “I believe we are headed for an economic crisis the likes of which we haven’t seen since 1929.” In all my following posts and comments I said repeatedly America would NOT collapse. So tell us what you are referring to, with the link. One of my hot buttons is being misquoted or having words put in my mouth. Go through the old thread and see how often I specifically say America will NOT collapse. , and I await your exact quotation and link. Thanks.

February 14, 2007 @ 10:39 am | Comment

Why does a falling dollar necessitate economic destruction? A falling dollar also makes investment in the US cheaper, labor is cheaper and exports are cheaper.

I think some bitter, very long term expats are looking to justify their relocations.

February 14, 2007 @ 10:46 am | Comment

Nanhey, please don’t be ridiculous. First, I am a short-term expat. Second, I write about this only because I think it’s what’s going to happen based on our spending practices, the government’s constant urging of the US citizens to “go shopping,” our secrecy over what’s happening with the dollar, our ramping up for more war in the Middle East, the perilous situation of China and others owning so much of our currency and other very specific factors. Again, I may be totally wrong. But the topic seems to have created a bit of panic inside of some readers. Time for you to buy some gold. 🙂 Seriously, I think those who become ballistic at these simple suggestions, echoed on countless web sites and by many others (along with zillions of other theories), are in fact deeply insecure about the state of the US economy today and need to do all they can by lashing out at the very suggestion of a crisis. Take it easy. No one thinks the US will collapse. Let’s see what happens. And Happy New Year.

February 14, 2007 @ 10:56 am | Comment

All from the Closed for Xmas post,
And I quote from the esteemed “Sociologist” Li,

“America’s assets can no longer cover its debt. Gordan Chang once wrote the Coming Collapse of China. I’m going to declare an Imminent Collapse of America, …..”

To which Richard responded (but later retracted),

“What an incredible first comment! I am generally in agreement with you, and on some issues passionately so. I believe we are headed for an economic crisis the likes of which we haven’t seen since 1929, and that it’s coming way faster than most of us think (like in, say, within the next 12 weeks or so, at least the first frightening signals)”

From the same post vaara said,

“The U.S. is heading into the next crisis — whenever it hits, whatever it is — with a financial system built on the buying and selling of debt, with the majority of its citizens sunk in debt and impelled by its cultural overlords to further frenzies of unsustainable overconsumption, and with an economy and thus a society deeply and mostly unwittingly enmeshed in a fragile web of international relationships and dependencies that could unravel in an instant.”

And just look above for this jewel,

“Yes, of course, a complete economic meltdown with capital fleeing the United States to foreign countries and the American economy collapsing in a heap.”

So there are 4 examples for you.

I can’t seem to find that old one cooked up by Ivan that predicted America would be out of oil by now, and everyone would be running around looting and robbing, especially me. That was by far the best prediction.

February 14, 2007 @ 5:47 pm | Comment

Go through the same thread and later ones on this topic and count how many times I say “America will not collapse.” I repeat my original question: Where did I or others say America would collapse, a word you put in quote marks? America did not collapse because of the Great Depression. It will not collapse with this impending crisis. Please, do not put words in my mouth – it is a big no-no, like saying Barack Obama said soldiers foolishly threw their lives away in Iraq. He ever said it. Economic meltdown, inevitable (as you yourself even admitted). Collapse, unlikely. Moving on….

February 14, 2007 @ 9:58 pm | Comment

How can I be putting words in your mouth, when I’m just cutting and pasting from your own comment? I really think you are over-reacting Richard. If you read my post up there, I never attributed any quote to you. I said that I’m glad you had the balls to bet on what you believed in, and I wanted to know why others weren’t doing the same. You mollified your statement about the economic crisis, it’s ok, we all say funny things when we get excited.

However, a lot of people clearly said that America is going to collapse. The evidence is right there in my last post. Sociologist Li says, “I’m going to declare an Imminent Collapse of America”? In this very article are the words, “the American economy collapsing in a heap”. The title of that old article posted by Ivan, “The Coming Collapse of Soviet America”. I think I’ve proved my point.

February 15, 2007 @ 8:58 am | Comment

Socilioloogist Li, in his first comment ever, said he predicted a collapse. Looking at your quote – an inaccurate and intentionally provocative quote – you would think that was the consensus here. You wrote this: What about all you others out there who predicted “the collapse of America”. Did you change your mind already?

As far as I can see, only one commenter said anything at all about collapse. Again, if you look through the thread you will see multiple times when I say there will be no collapse. And I don’t like the snide, “Did you change your minds already” follow-up. No one changed their minds because no one but Li said it. And where did he say or imply he had changed his mind? Where are you coming from? But please, don’t answer – I am really tired of this. Simply follow this simple rule: If you use quotes, say who you are quoting. Never use “straw men” (“What about all of you who said…”). Thanks. Next topic.

February 15, 2007 @ 9:18 am | Comment

Pha, end it now, okay? Moving on.


February 15, 2007 @ 11:12 am | Comment

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