The Demise of America July 2014

[max-greece]

Cinjin,

Just too many points to raise for me to do this justice in any way but here are a few things to consider:

1. Everybody is reliant on the US economy staying up. That's the global economy for you. If the US goes down we all do.
2. No-one can get rid of the $. Whether your country is a net importer or a net exporter of oil you can only buy it in dollars - that is the brilliance of Kissinger - but it goes beyond that too. Everyone pays for oil in dollars. Oil rich countries, like those in the middle east are stuck with dollars. They can't risk exchanging them for something else as the sheer value of them would collapse the exchange market. Instead they do the only thing they can do - they buy treasury bonds and make a return. Its a constant source of borrowing for the government, and its cheap.
3. A devaluation of the dollar isn't necessarily a bad thing - even if your economy is a net importer as the US is. Arguably it is the best thing for a country in your position. Foreign goods become more expensive, Local goods cheaper.

Suddenly that BMW isn't just $10,000 more expensive that the equivalent Lincoln its $25,000 more. Less people buy BMW's - more people buy Lincoln. Sales go up, employment goes up. BMW dealers close. Lincoln dealers open. More jobs, more money. The devalued dollar goes just as far on local goods as it ever did - its just other currency denominated goods that get more expensive. At the same time manufacturing starts to look more appealing back home. Wage costs are reducing (by devaluation). The government seizes on the opportunity to support returning manufacturing enterprise by giving them tax breaks and the like. Meanwhile foreigners suddenly discover that its cheaper to go to the US than it has ever been. This has happened before. In about 1979-80 the dollar dropped to $2,40 to the pound sterling. That year it was cheaper for my parents for us to go on a, "2 weeks in Miami and one week in the Bahamas" holiday than to go to Spain for 2 weeks. Within 2 years the dollar had bounced back up again.

Now its not a panacea. It can go badly wrong and needs management. A collapsed dollar isn't the perfect result either as some imports have to be made, but, that (the collapsed dollar) is in no-one's interest. To stop the dollar collapsing central banks will start buying them up around the world. At the same time, hopefully, the cretins will stop printing the stuff. That, in and of itself, pushes the price of the dollar back up. Central banks then slowly re-release dollars back into the system and probably make a profit on the enterprise.

Note that whilst at the moment the market's panic at the slightest sign of the fed stopping printing money they won't with a weaker dollar as export volumes climb and employment climbs.

Now one final thing. Too big to fail. Needs explaining.

Take Greece. Greece owed about 300 billion Euros but if it defaulted the cost to the global economy would have been far higher. Actually the estimated cost to Europe at the time was 3 trillion - a 10 fold multiplier. This is due to the nature of financial instruments and insurance/assurance businesses.

Now the US owes 17 trillion. Factor in the multiplier and that is greater than the global net worth. THAT is too big to fail!

[CapnAwesome]

Haha, in July 2014? Never trust predictions with such an accurate date.

[Cato]

Fuck, I thought Harold Camping died.

[TaraJo]

I first started paying attention to politics in 1992, with the Bill Clinton campaign. Since then, the kind of economic talk I heard in the video has been pretty much what the Republicans have preached constantly. Back then, I remember them telling us how the election of Clinton and his financial policies would lead to the economic destruction like we had never seen before; yet the 90's had the best economic growth of my life. Yet the same people kept telling us that the election of Dubya and his financial policies would make the economy better, even while things seemed to keep getting worse and worse while he was in office, culminating in the 2008 crash.

So, it doesn't surprise me at all to hear the same people saying the same things now that there's a democrat in the oval office and companies are starting to hire again. Trust me, I know politics enough to know, they'll get their guy in there eventually and they'll be back to predicting sunny days while everyone else is lining up in unemployment lines.

[Cinjin]

max,

You certainly seem more knowledgeable in macro economics than myself and I appreciate your informative posts.
Let me ask you just a few questions.:
1. In the video, Stansberry makes the claim that there are multiple countries like China, India, Russia, etc etc that are in the process of unloading their US dollars in preparation for the supposed collapse. Do you believe that to be true and if so, what would that mean for their economies if the $ was no longer the world's reserve currency?
2. Would those same countries feel such a severe outcome if they were to successfully pull away from the dollar and create an all new currency?
3. Is it true that countries like India and China etc. are limiting the amount of US$ american tourists can exchange? Have you ever heard of this before?
4. Have you ever heard of the radical idea of debt forgiveness? Basically, the world starting from scratch? I once heard a complex version of this theory and always wondered why it would or would not work.

Thanks

[max-greece]

max,

You certainly seem more knowledgeable in macro economics than myself and I appreciate your informative posts.
Let me ask you just a few questions.:

Oh boy - way to be called out - OK I'll do my best:

1. In the video, Stansberry makes the claim that there are multiple countries like China, India, Russia, etc etc that are in the process of unloading their US dollars in preparation for the supposed collapse. Do you believe that to be true and if so, what would that mean for their economies if the $ was no longer the world's reserve currency?

Well there isn't an obvious replacement for the $ as the world reserve currency. It would take about a decade to establish a new currency that engendered enough confidence to take its place. The Euro should be the front runner but that is as popular as Bacon - in a Synagogue.

Now there is a left field alternative in the wings - Bitcoin. That is a fascinating option - however there have been a slew of security issues over it and several hacks that rather undermine confidence. I can't imagine who might have engineered that....

Even if there were an alternative the hit from the collapse of the US economy would be massive - and probably barely alleviated by the shift away. US Debt levels are enormous and who do you think its owed to? Even if you were a country that holds no US debt its unlikely that you don't own debt in a country that owns US debt. Globalization means, in essence - no hiding place.

2. Would those same countries feel such a severe outcome if they were to successfully pull away from the dollar and create an all new currency?

Answered above. Short answer - no. Long answer - hell no.

3. Is it true that countries like India and China etc. are limiting the amount of US$ american tourists can exchange? Have you ever heard of this before?

It might be true - I haven't heard it - but that also might be for other reasons. They might be attempting to bolster or protect their own currency and restrict flows of foreign currency into local hands. This can be important for taxation reasons. Greece used to have strict controls on the Drachma both ways, in and out for reasons not at all related to the strength or weakness of the dollar. I suppose the first question is - is it just the dollar or the Euro as well. I'll be able to tell you in about 3 weeks as my wife is off to a conference there (China) towards the middle of the month.

4. Have you ever heard of the radical idea of debt forgiveness? Basically, the world starting from scratch? I once heard a complex version of this theory and always wondered why it would or would not work.

I think I already referred to this option although I called it a complete reset or something. If the dollar does collapse it may be the only option. Nobody seems to quite know how it would be achieved or how the winners and losers might react. How much consensus we'd get for this on a global scale I have no idea.

Aside from the will and overcoming the practicalities - which could be huge ensuring that there isn't a global run on a bunch of currencies is vital. We don't want a 1930's Germany situation where you turn up to buy a loaf of bread with a basketful of currency only for the shop-owner to turn it upside down in the street and keep the basket.

Then there are the issues of personal and business debt. How would these be handled? What about debts not owed to banks (trading accounts for example)? What about mortgages? How to you handle company stocks (which are a debt in essence)....

In summary - its a great idea in principle - but a fucking nightmare to implement. We may not have a choice but whilst we do I can't imagine this would be a popular option - even for debtor countries once all the ramifications become clear.

[Minimalist]

Since then, the kind of economic talk I heard in the video has been pretty much what the Republicans have preached constantly.

I stopped listening to republican shitwits when Nixon turned out to be a crook after tall.

[Cinjin]

4. Have you ever heard of the radical idea of debt forgiveness? Basically, the world starting from scratch?

Then there are the issues of personal and business debt. How would these be handled? What about debts not owed to banks (trading accounts for example)? What about mortgages? How to you handle company stocks (which are a debt in essence)....

In summary - its a great idea in principle - but a fucking nightmare to implement. We may not have a choice but whilst we do I can't imagine this would be a popular option - even for debtor countries once all the ramifications become clear.

One theory I heard was that if worldwide debt forgiveness was to work it would have to be universal. Rather, it could ONLY be universal. The entire world, every invoice, every mortgage, every overdue account, absolutely every debt that is owed would have to be erased. The idea is that whatever item/property/etc you currently own (regardless the debt owed on it) is now yours free and clear. The companies/banks that are owed are also free and clear of all their debt. The investors who are owed money are also clear of their personal debts. On and on it goes so that no person or company is left holding the bag. The wealthy would not lose what they've garnered in life, the poor would not be made to pay anything. It would simply mean that the day after the "reset" every working government and individual in the entire world is free to create the biggest economic boom the world has ever seen. Imagine an entire globe full of people who actually had money to spend on the goods and services they wanted, and with no remaining debt, wages and prices could be set at the standards of the 19th century. It wouldn't matter if we made a gallon of milk a nickle because compensation could be set to match.

Of course, some people would say that no one would go to work if no one had debt, but I don't believe that for a single second. I think the great majority of the world would feel such a great relief that it would damn near be inspiring. I think not only would people go to work, but they would become driven with a new sense of hope and empowerment.

It'll never happen of course. We have far too many powerful people who will not give up their control and their endless river of blood money.
Doesn't mean it couldn't work though. IMO

[kılıç_mehmet]

Well, I'm sure that one day America will meet its well-deserved fate, and this abomination of a country will eventually lose it's integrity and become what it was before. A collection of independent states, instead of a federation.
However, I think that a "sudden end" is not something I'd expect to happen, but a slow and painful end is the end of America. Through this course, it will already be replaced by another major power which will assert its currency over the US dollar, which in turn will be the eventual death of America.

[Cinjin]

How does a country become an "abomination?"