This is very long, but very sobering. Are you preparing for the apparent inevitability of the dollars collapse? CONTRIBUTOR US Economics and Finance through (fictional) Foreign Eyes Posted by Roger ODaniel on March 4, 2014 at 1:45pm View Blog Thank you for coming to this meeting on such short notice. We are especially grateful to Fu Ling U from China and Schneider Von Dipstick from Germany for their long journey here. First, it is difficult to wrap our minds around the hugeness of the US dollar numbers we are dealing with. Perhaps this example will give you a feel for the size of our problem. If you could spend $1,000 US dollars per second, 24 hours per day, continuously without pause, it would take you 31 years and 8 months to spend just one trillion US dollars. We government economists, trading partners and international bankers are “on to the USA” about their financial policies. We know that their nation owes more debt to foreign creditors than the rest of the debtor nations combined, or about 60 percent of all debt on this planet. This includes the P.I.G.S. (Portugal, Ireland, Greece, Spain) and now Italy. France is on the waiting list. We also realize that their US Government is committed to future payments of about $115 trillion in entitlements that are not actuarially sound. We observe with greatest concern that their Government insists on over-spending their income by anywhere from 42% to 48%, depending on who we ask. Their Federal Reserve is buying over $60 billion worthless securities from Fannie Mae and Freddy Mac per month. That is quantitative easing on steroids. Perhaps that explains why their outgoing Chair of the FED is nicknamed “Helicopter Ben.” Their Bureau of Statistics (BS) claims that unemployment is 7.2 percent. Gallup reports that it is actually somewhere north of 31 percent when one considers the decline in the size of their work force. In the face of that reality, the US government remains unwilling to balance its budget or spend within its means. We also notice that most of their member States also are in serious economic trouble for similar reasons. Their financial troubles are at least partially induced by unfunded federal mandates forced upon the member States by their central government. In other words, the US Government is borrowing more money to cover almost half of their current operating expenses. We also notice that their Federal Reserve central bank, nicknamed the FED, increased its holdings of US debt obligations by about $1 trillion in 2013 alone. This action expands the domestic money supply unless foreign banks absorb this by increasing their reserve currency holdings. As a result, the interest payments on their national debt are eating into more and more US Government revenue with no end in sight and leaving progressively less money to pay for operating expenses and debt retirement. When “Helicopter Ben” defined quantitative easing #3 as an indefinite monthly purchase agreement, that remark went over like a loose female skunk in the international space station everywhere except the United States. The FED is using its monetary policy tools to keep interest rates low, but that cannot last much longer. As US Treasuries mature, foreign governments are going to demand higher interest rates to roll over their debt holdings as they retire. This creates a problem for us because we exchange US Treasuries with US cash that we somehow have to get rid of. It also creates a problem for them because debt service consumes an ever larger portion of their operating revenue. How can we do that? Foreign banks and foreign-owned corporations with balance of payments surpluses are re-evaluating the usefulness of the US dollar as the favored reserve currency for international trade. This is important because foreign banks and corporations collectively hold trillions of US dollars in their accounts and the US pays no interest on that money. International banks also have a problem of their own. If they use another reserve currency instead of US dollars, how do they get rid of their US dollars? If they become harder to exchange, they get discounted in value, thereby causing monetary inflation through devaluation. If the financial herd starts a stampede, the dollar becomes worthless because there is no commodity to back its value in international commerce. The only way that these entities can collectively reduce their holdings is to buy something of commodity value from the United States. Their US currency has not been backed by anything of value since 1965 when the silver certificate became a Federal Reserve Note, called “fiat money.” Therefore, the FED is only obligated to trade one dollar bill for another dollar bill. So what can we buy from the USA with their dollars? Their trading partners are going to demand higher prices for imported goods. If we can move our dollar balance to some other trading partner by buying stuff from them with US dollars, we will do so as long as we can. We also will invest in ownership of US corporations, buy more of their country’s natural resources, farmland, mineral rights, and anything else of tangible value they own to get rid of our US dollars. This is already happening. If this continues, we will own their capital stock and they will be working for us. Instead of US corporate profits fueling their economic engine, it will sap their strength and fuel ours. Instead of being a member of the International Monetary Fund (IMF) the USA may become its largest client. If US Big Labor tries to mess with our manufacturers on their soil, we go somewhere else and take their jobs with us. If the unions get personal, we know how to let their threats fall on their own heads. Eventually, their soup kitchens run out of ingredients and cannot buy more. See Haiti for what happens next. Their only practical way out of this financial snake pit is to make things, flow stuff, mine stuff and grow things we foreign creditors want to buy for more money than it costs them to produce and deliver. However, the US has de-industrialized itself, so they have lost most of their manufacturing infrastructure to ours. That action created their balance of payments deficit with us because US corporations were over-taxed, over-regulated, and milked dry by Big Labor. They could not compete in the international marketplace. Their only survival option was to move their manufacturing jobs offshore to stop the bleeding. Their largest export is paper. Most of it is used to make packaging material for products made in China. If US citizens try to find a US made product that they need, they have to look very hard to find it. But the US work force is the most productive in the world, right? Then how can we make a profit on a product we can manufacture and ship to their door at a price below their cost of manufacture? There is something wrong with this scene. Their US Government continues to over-spend its income with no end in sight. The deadlocked Administration and Senate vs. the US Congress shows no sign of any financial remedy to their financial crisis. The US Treasurer does not control fiscal policy; he pays the bills with the money he has available and must borrow the rest, thereby increasing their National Debt. Their Federal Reserve central bank, unknown to most of their electorate, is forced by its charter to become the lender of last resort. In other words, the FED MUST BUY DEBT that the US Government cannot sell to pay its bills. It may elect to buy debt to keep interest rates low, but tax everyone’s savings and sap everyone’s purchasing power with monetary inflation that inevitably follows that action. That includes our US dollar holdings. Their political leaders say, “But we need to spend stimulus money to create jobs that put money into people’s pockets so they can buy stuff from employers to create jobs. Right?” Not if it has a label that says, “Made in China”, “German Engineering”, ”Made in Japan”, “Made in S. Korea”, “Product of Mexico”, “Product of Chile”, etc. Perhaps that is why their stimulus money does not create jobs. The only way I know of to raise a stagnant economy out of recession is through their own PRIVATE SECTOR INVESTMENT. Government cannot buy prosperity. It can buy poverty.
Posted on: Wed, 05 Mar 2014 10:50:16 +0000
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