Impending US economic collapse?

[Sir_K]

Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA).

After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) and continued his search for a good paying AMERICAN JOB.

At the end of yet another discouraging and fruitless day, Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in.....AMERICA.....

The US Dollar has declined by over 20% (maybe a little bit less due to a moderate uptick in the past quarter) in the past 18-20 months. This in part is the reason for increasing oil prices (hitting over $50 / bbl at one point), gold prices (hitting over $500 / o at one opint) and as some speculate, the US invasion of Iraq (Saddam declared intent to sell oil in Euros instead of dollars, which would create further pressure on the US dollar).

An example of the affect of this continuing for the next 20 months would be ($CAD):

The cost of a basic progressive scan DVD player going from $299.99 to $359.99.

The cost of a best selling Toyota camry going from $24,800 to $29,760.

The cost of a litre of fuel going from 79.9 / litre to 95.9 . litre, or

The cost of a $5.25 Starbucks latte going jumping to $6.30.

All within 20 months because of the currency fluctuation. And imagine the Asian currency reserves, which by that time would have lost over 30% of their value in over a trillion US dollars worth of foreign exchange currency reserves - if they begin to sell their US dollars, the US decline would kick in the afterburners. (FOREX is a supply and demand market).

To make matters worse, the US doesnt have the economic fundamentals (over 1 million lost jobs, record deficits, record trade deficit and lack of stability due to the so called "war on terror") to fix the problem within a decade.

Canada relies heavily on the US as our primary trading partner - so a devaluation in US currency typically precedes the Bank of Canada tinkering to create a mirror devaluation in our own currency, meaning to keep export levels high, we could see our currency devalued as well.

Do you think that the US will find a way to recover? What should Canada do with our currency, let it rise and suffer in exports to our major trading partner or devalue our money to keep jobs? What do you think that Americans will do if they end up in a worst case scenario like $16 US for a litre of gasoline or $980 US for a basic progressive scan DVD player?
References:

Left wing ( http://whatreallyhappened.com/ARTICLE2/doodoo.html )
Right wing ( http://www.forbes.com/2003/07/07/cz_rm_0707china.html )
Neutral (FOREX Analyisis) ( http://www.refconews.com/cur_usd_f_f.html )

---

I know its heavy stuff, but well worth understanding. :-)

[Lisa_Lovely]

^I'm too burnt to even read that

[Rytalin]

^then play it :)

[djmarkpaul]

^ LOL! Luke that was out of hand!

***

The next super powers will be India and China, though I'm putting my money on China.

[e_BoY]

^^
u really think china will be the next? iono im chinese and as i would like to say that they are next im just not too sure. maybe. but all i have to say is FUCK U USA

[djmarkpaul]

^Give 'em 20 years.

[Sir_K]

Rytalin: That game was awesome- killer link

[crackdragon]

Originally Posted by Rytalin

^then play it :)

hahaha thats a great game

[SEAN!]

the american economy will still be the preminent economy even 10-15 years from now, however, there will be an increasing disparity between the rich and the poor as less skilled jobs will continue to be outsourced while its likely that the wealthy in american will get even wealthier.

its not just canada who has to worry, the united states is essentially the centre of entire world's economy.

in terms of currency the value of US dollars is far higher then that of the euro, in fact the recent high value of american currency has been hurting alot of their exports. dont fool yourself into think their will be an economic collapse in the united states the decline in the value of the US dollar is intenional, and the continuing low interest rates set by the fedreserve board will ensure that USD will continue to be devalued.

[Anjew]

republicans always drive the economy down.
if kerry wins.
americans will do well again.

[Sir_K]

Originally Posted by SEAN!

in terms of currency the value of US dollars is far higher then that of the euro, in fact the recent high value of american currency has been hurting alot of their exports. dont fool yourself into think their will be an economic collapse in the united states the decline in the value of the US dollar is intenional, and the continuing low interest rates set by the fedreserve board will ensure that USD will continue to be devalued.

US dollar fluctuation cannot be simply looked at from a US Fed tinkering perspective with regards to the attractiveness or unattractiveness of US exports.

As the US dollar falls, it is important to remember that foreigners (who are currently not just desired, but absolutely required to finance the US deficit spending spree that will now continue until at least 2010) are having their investments eroded at record pace. (A simple example would be China, with over $1 trillion US in currency reserves, which has lost over $200 billion on their investments over the past 18 months due to currency exposure to the US dollar - they are now moving into Euros and Austrailian dollars)



Take for example the US treasury rate which the Fed has bottomed out. While a low relative US treasury rate decreases demand for US dollar-denominated bonds (this is how the US government finances their debts, like all governments), it also reduces demand for these bonds. Bush's tax cut stimuli and agressive are attempting to shift demand for US dollars from safe government treasuries into US equities like stocks.

The above chart shows that as the S&P falls, the dollar is falling along with it. Sustained low interest rates create increased pressure on the US dollar (different negative pressures tend to compound exponentially in currency markets), as does the negative trade deficit (another pressure), and weak fundementals (another pressure).



As real rates fall, the dollar goes along with it. While this may help exporters, but it harms anyone purchasing imported products (ie. Oil, computer chips, cellpohones, television sets, basically almost everything)

If the US relied on domestic production for the majority of their goods, the US could tinker with the dollar with little effect for real consumer prices. However this is not the case.

Therefore as the US Dollar falls, the CPI (Consumer price index) rises, as the US imports the majority of its goods from other countries. Even though Oil is denominated in US dollars, it has begun to rise as well.

Where the compounding effect really takes hold is this - low interest rates, plus a high CPI and a reliance on exports negatively impacts corporate revenues domestically, and therefore hits equities in financial markets, further compounding weak demand for a dollar along with negative returns for just holding (uninvested) US dollars of over 20% and weak guarunteed rates (bonds) which do not even come close to making up lost returns due to currency risk.

If you add to all of that downward pressure, the fact that unlike Canada the US is making record bond issues (they need to sell a lot of bonds at these low rates to finance the deficit and wars, etc), the negative pressure will force them to raise interest rates.

While a raise in interest rates would give the dollar some upward pressure, it would place downward pressure on already timid equity markets, reversing all of that upward pressure with a selloff by foreign investors in US equity markets, with the associated FOREX exchanges to their own native currencies, plus some.

This creates somewhat of a perfect storm and US dollar bear market for some time to come.

If the US was still in surplus buying back bond issues and reducing the overall debt, the current depreciating dollar would actually be a good thing. However, this has much wider political ramifications than only exports as the dollar is being viewed as fundamentally and technically weaker as the US has hit some ugly milestones which mirror other fiat currency blowouts from the past - like a current account deficit of around 5% of GDP, this is the rate that both Germany and Argentina reached just before the absolute collapse of their currencies and is a warning marker used by the IMF.

So, in this case, no; this is not just a case of the US Fed tinkering with the value of the dollar for economic purposes, this is actually quite the opposite, they are attempting to tinker with the financial markets in order to create strong dollar domand there so they can retain record low interest rates so interest payments on the record deficit levels do not become equal to taxation revenues, which they would reach if interest rates rise to more traditional levels of 5% within three years.

[SEAN!]

Originally Posted by Sir_K

US dollar fluctuation cannot be simply looked at from a US Fed tinkering perspective with regards to the attractiveness or unattractiveness of US exports.

As the US dollar falls, it is important to remember that foreigners (who are currently not just desired, but absolutely required to finance the US deficit spending spree that will now continue until at least 2010) are having their investments eroded at record pace. (A simple example would be China, with over $1 trillion US in currency reserves, which has lost over $200 billion on their investments over the past 18 months due to currency exposure to the US dollar - they are now moving into Euros and Austrailian dollars)



Take for example the US treasury rate which the Fed has bottomed out. While a low relative US treasury rate decreases demand for US dollar-denominated bonds (this is how the US government finances their debts, like all governments), it also reduces demand for these bonds. Bush's tax cut stimuli and agressive are attempting to shift demand for US dollars from safe government treasuries into US equities like stocks.

The above chart shows that as the S&P falls, the dollar is falling along with it. Sustained low interest rates create increased pressure on the US dollar (different negative pressures tend to compound exponentially in currency markets), as does the negative trade deficit (another pressure), and weak fundementals (another pressure).



As real rates fall, the dollar goes along with it. While this may help exporters, but it harms anyone purchasing imported products (ie. Oil, computer chips, cellpohones, television sets, basically almost everything)

If the US relied on domestic production for the majority of their goods, the US could tinker with the dollar with little effect for real consumer prices. However this is not the case.

Therefore as the US Dollar falls, the CPI (Consumer price index) rises, as the US imports the majority of its goods from other countries. Even though Oil is denominated in US dollars, it has begun to rise as well.

Where the compounding effect really takes hold is this - low interest rates, plus a high CPI and a reliance on exports negatively impacts corporate revenues domestically, and therefore hits equities in financial markets, further compounding weak demand for a dollar along with negative returns for just holding (uninvested) US dollars of over 20% and weak guarunteed rates (bonds) which do not even come close to making up lost returns due to currency risk.

If you add to all of that downward pressure, the fact that unlike Canada the US is making record bond issues (they need to sell a lot of bonds at these low rates to finance the deficit and wars, etc), the negative pressure will force them to raise interest rates.

While a raise in interest rates would give the dollar some upward pressure, it would place downward pressure on already timid equity markets, reversing all of that upward pressure with a selloff by foreign investors in US equity markets, with the associated FOREX exchanges to their own native currencies, plus some.

This creates somewhat of a perfect storm and US dollar bear market for some time to come.

If the US was still in surplus buying back bond issues and reducing the overall debt, the current depreciating dollar would actually be a good thing. However, this has much wider political ramifications than only exports as the dollar is being viewed as fundamentally and technically weaker as the US has hit some ugly milestones which mirror other fiat currency blowouts from the past - like a current account deficit of around 5% of GDP, this is the rate that both Germany and Argentina reached just before the absolute collapse of their currencies and is a warning marker used by the IMF.

So, in this case, no; this is not just a case of the US Fed tinkering with the value of the dollar for economic purposes, this is actually quite the opposite, they are attempting to tinker with the financial markets in order to create strong dollar domand there so they can retain record low interest rates so interest payments on the record deficit levels do not become equal to taxation revenues, which they would reach if interest rates rise to more traditional levels of 5% within three years.

i never looked into it as deeply as that, i know very little about currency and equity markets. i guess they are fucked, especially considering fiscial drag their budget deficiets will have on their economy.

[Sir_K]

Originally Posted by SEAN!

i never looked into it as deeply as that, i know very little about currency and equity markets. i guess they are fucked, especially considering fiscial drag their budget deficiets will have on their economy.

The big kicker in a nutshell is a declining dollar with weak interest rates, poor equity returns and record bond issues (deficits) all at the same time.

Would the US attack Canada for our resources if a litre of gas costed them 16 US dollars?

[Newbie4life]

WOW... bush fucked up a lot of shit...

[Newbie4life]

nevermind.... america's going to hell, not only cause of bush but because of there ignorance of economy and currency

I cant wait for the new super power! i'm thinking its going to be china, or europe. What this world needs is a new form of governing system. Its obvious that having any kinda of head figure or leader will lead to corruption but if there arent any leading figures everything goes to shit anyways.

i dont know what would work... only if we can get rid of the system of currency...

[Sir_K]

Originally Posted by e_BoY

^^
u really think china will be the next? iono im chinese and as i would like to say that they are next im just not too sure. maybe. but all i have to say is FUCK U USA

Originally Posted by djmarkpaul

^^
Give em 20 years

Actually, prior to the British Empire, China was the worlds dominant economy with India second, being some of the worlds oldest civilizations. Most historians think more in terms that China will regain control of the world economy from a relatively short (blip in China's long history) period of instability.

[Newbie4life]

the usa and its capitalism has only been around a blink of an eye, compared to the roman or egyption eras

[SEAN!]

Originally Posted by Newbie4life

the usa and its capitalism has only been around a blink of an eye, compared to the roman or egyption eras

capitalism will be around for a long time to come.

even the roman and egyptian empires were capitalist in a sense that they traded goods, used currency rather then barter, sold surplus production, different regions specialized in production, blah blah.

[Lisa_Lovely]

I think India will become a major player in the next 20 years

[NinjaBoy]

Originally Posted by Lisa_Lovely

I think India will become a major player in the next 20 years

Huh? Explain.

[khandydav3]

Fuck America. go to a rave.

[Sir_K]

Originally Posted by Lisa_Lovely

I think India will become a major player in the next 20 years

Originally Posted by NinjaBoy

Huh? Explain.

India is set to become a major player in the world economic stage, following China. India's engineers, programmers, and technical talent is already recognized by the likes of IBM, Oracle, and Hewlett Packard, who have outsourced a number of major operations there, including call centers.

Part of the reason for this is that a large segment of India's workforce is highly educated, and very very cheap to hire.

There is also a considerable Indian contingent located in several of the major industrialized nations, such as Canada, the US, Britian, South Africa, Australia, Ireland and Scotland. These contingents provide a link back to India, and many Indians living and working abroad have done quite well for themselves, often starting their own businesses. Indians tend to keep a connection to their motherland even through several generations of being away.

India has also worked very hard at properly integrating into the world economy, and has a very prudent relationship with the rest of the world through the WTO.

In the global scene, they are about 5-10 years behind China in economic reforms. They have a huge population, and once this population starts to come on-line contributing to GDP, India will be a powerful force indeed.

If India's average worker puts only a tenth as much toward the countries GDP as the average Canadian worker, India's economy would dwarf Canada's by a factor of 10. That figure is only about 5-10 years away.

Lisa's prediction that India will be a powerful economic force within 20 years is almost certain. If China continues on the path that it is currently on, even taking for account that China is looking to slow their economy a bit in the near term to combat inflation, they will be roughly the same economic output as the United States in 20 years. By that time, India will be a powerful force indeed.

[The_acidhouse]

Fiat currency fraud - the greatest evil government has ever undertaken.

Originally Posted by Sir_K

Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA).

After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) and continued his search for a good paying AMERICAN JOB.

At the end of yet another discouraging and fruitless day, Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in.....AMERICA.....

The US Dollar has declined by over 20% (maybe a little bit less due to a moderate uptick in the past quarter) in the past 18-20 months. This in part is the reason for increasing oil prices (hitting over $50 / bbl at one point), gold prices (hitting over $500 / o at one opint) and as some speculate, the US invasion of Iraq (Saddam declared intent to sell oil in Euros instead of dollars, which would create further pressure on the US dollar).

An example of the affect of this continuing for the next 20 months would be ($CAD):

The cost of a basic progressive scan DVD player going from $299.99 to $359.99.

The cost of a best selling Toyota camry going from $24,800 to $29,760.

The cost of a litre of fuel going from 79.9 / litre to 95.9 . litre, or

The cost of a $5.25 Starbucks latte going jumping to $6.30.

All within 20 months because of the currency fluctuation. And imagine the Asian currency reserves, which by that time would have lost over 30% of their value in over a trillion US dollars worth of foreign exchange currency reserves - if they begin to sell their US dollars, the US decline would kick in the afterburners. (FOREX is a supply and demand market).

To make matters worse, the US doesnt have the economic fundamentals (over 1 million lost jobs, record deficits, record trade deficit and lack of stability due to the so called "war on terror") to fix the problem within a decade.

Canada relies heavily on the US as our primary trading partner - so a devaluation in US currency typically precedes the Bank of Canada tinkering to create a mirror devaluation in our own currency, meaning to keep export levels high, we could see our currency devalued as well.

Do you think that the US will find a way to recover? What should Canada do with our currency, let it rise and suffer in exports to our major trading partner or devalue our money to keep jobs? What do you think that Americans will do if they end up in a worst case scenario like $16 US for a litre of gasoline or $980 US for a basic progressive scan DVD player?
References:

Left wing ( http://whatreallyhappened.com/ARTICLE2/doodoo.html )
Right wing ( http://www.forbes.com/2003/07/07/cz_rm_0707china.html )
Neutral (FOREX Analyisis) ( http://www.refconews.com/cur_usd_f_f.html )

---

I know its heavy stuff, but well worth understanding. :-)

[stephen_c]

Never underestimate the powers of the Federal Reserve.

In a related Economist article, this end quote sums it up the best:

“The truly unique power of a central bank”, he once observed, “is the power to create money, and ultimately the power to create is the power to destroy.”

http://www.economist.com/opinion/dis...ory_id=2766337

So who knows what will happen. They could work magic or they could fuck it up royally.

But no matter what happens, when it comes to money it’s all about trust and stability. For the next 20+ years, the Greenback will still be the preeminent currency.

As for America itself, SEAN! is right when he said “there will be an increasing disparity between the rich and the poor as less skilled jobs will continue to be outsourced while it’s likely that the wealthy in American will get even wealthier.” America as a whole will only get richer while the gap between the rich and the poor grows wider.

PS. It’s nice to see a thread w/ substance and intelligence here on fnk from time to time.

[miSsy_chriSsy]

my cat's breath smells like cat food.