Posted by Wealth Wire - Wednesday, January 2nd, 2013
The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies
By recklessly printing, borrowing and spending money, our authorities are absolutely shredding confidence in the U.S. dollar. The rest of the world is watching this nonsense, and at some point they are going to give up on the U.S. dollar and throw their hands up in the air. When that happens, it is going to be absolutely catastrophic for the U.S. economy. Right now, we export a lot of our inflation. Each year, we buy far more from the rest of the world than they buy from us, and so the rest of the world ends up with giant piles of U.S. dollars. This works out pretty well for them, because the U.S. dollar is the primary reserve currency of the world and is used in international trade far more than any other currency is. Back in 1999, the percentage of foreign exchange reserves in U.S. dollars peaked at 71 percent, and since then it has slid back to 62.2 percent. But that is still an overwhelming amount. We can print, borrow and spend like crazy because the rest of the world is there to soak up our excess dollars because they need them to trade with one another. But what will happen someday if the rest of the world decides to reject the U.S. dollar? At that point we would see a tsunami of U.S. dollars come flooding back to this country. Just take a moment and think of the worst superstorm that you can possibly imagine, and then replace every drop of rain with a dollar bill. The giant currency superstorm that will eventually hit this nation will be far worse than that.
Most Americans don't realize that there are far more dollars in use in the rest of the world than in the United States itself. The following is from a scholarly article by Linda Goldberg...
The dollar is a major form of cash currency around the world. The majority of dollar banknotes are estimated to be held outside the US. More than 70% of hundred-dollar notes and nearly 60% of twenty- and fifty-dollar notes are held abroad, while two-thirds of all US banknotes have been in circulation outside the country since 1990
For decades we have been exporting gigantic quantities of our currency.
So what would happen if that process suddenly reversed and massive piles of dollars started coming back into the country?
It is frightening to think about.
Well, I guess the key is to get the rest of the world to continue to have confidence in the U.S. dollar so that will never happen, right?
Unfortunately, there are lots of signs that the rest of the world is accelerating their move away from the U.S. dollar.
For example, it was recently announced that the BRICS countries are developing their own version of the World Bank...
The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report.
And as I noted in a previous article, over the past few years there have been a whole host of new international currency agreements that encourage the use of national currencies over the U.S. dollar. The following are just a few examples...
1. China and Germany (See Here)
2. China and Russia (See Here)
3. China and Brazil (See Here)
4. China and Australia (See Here)
5. China and Japan (See Here)
6. India and Japan (See Here)
7. Iran and Russia (See Here)
8. China and Chile (See Here)
9. China and the United Arab Emirates (See Here)
10. China, Brazil, Russia, India and South Africa (See Here)
Will this movement soon become a stampede away from the U.S. dollar?
That is a very important question.
But you don't hear anything about this in the U.S. media and our politicians are not talking about this at all.
Meanwhile, our "leaders" seem to be doing everything that they can to destroy confidence in the U.S. dollar. The Federal Reserve is printing money like there is no tomorrow, and the federal government continues to run up trillion dollar deficits year after year.
They do not seem to understand that they are systematically destroying the U.S. financial system.
Other world leaders get it. For example, Russian President Vladimir Putin once said the following...
"Unreasonable expansion of the budget deficit, accumulation of the national debt – are as destructive as an adventurous stock market game.During the time of the Soviet Union the role of the state in economy was made absolute, which eventually lead to the total non-competitiveness of the economy. That lesson cost us very dearly. I am sure no one would want history to repeat itself.”
Why can't most of our politicians see how destructive debt is?
What the federal government continues to do is absolutely insane. The national debt increased by more than 24 billion dollars on the day after Thanksgiving this year. But utter disaster has not struck yet, and most Americans are not really that concerned about the debt. So things just keep rolling along.
And of course our national debt of $16,309,738,056,362.44 is nothing when compared to the future liabilities that our federal government is facing. Just check out what a recent article in the Wall Street Journal had to say about all this...
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Other economists paint an even gloomier picture. According to economist Niall Ferguson, the U.S. government is facing future unfunded liabilities of 238 trillion dollars.
So where are we going to get all that money?
Well, why don't we just print more money than ever before so that the U.S. government can borrow and spend more money than ever before?
Don't laugh. That is actually what some of the top economists in the country are actually recommending.
The most famous economic journalist in the entire country, Paul Krugman of the New York Times, is boldly proclaiming that the solution to all of our problems is to print, borrow and spend a lot more money. He insists that there is no reason to fear that the giant mountain of debt that we are accumulating will someday collapse the system...
For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.
Of course what he is prescribing is complete and utter madness.
At some point this con game is going to collapse and the rest of the world is going to say a big, fat, resounding "NO" to the U.S. dollar.
Why should they continue to use a currency that is becoming extremely unstable and that is constantly being manipulated?
And when the rest of the world rejects the U.S. dollar, the value of the dollar will drop like a rock because there will be far less global demand for it.
In addition, if the rest of the world is not using the U.S. dollar for trade any longer, other nations will cease to soak up our excess currency and huge mountains of our currency that are floating around out there will start flooding back to our shores.
At that point we will be looking at inflation unlike anything we have ever seen before. The era of cheap imports will be over and we will pay far more for everything from oil to the foreign-made plastic trinkets that we buy at Wal-Mart.
Most Americans don't even know what a "reserve currency" is, but when the U.S. dollar loses reserve currency status it is going to unleash a nightmare that most economists cannot even imagine.
So enjoy this holiday season while you can. There are still lots and lots of cheap imports filling the shelves of our stores.
Once the coming giant currency superstorm strikes, we will dearly wish for the good old days of 2012.
Yes, the U.S. dollar is alive and ticking for now. But at the pace that our authorities are abusing it, I would not say that things are looking good for a long and healthy lifespan.
50 Bold Predictions for 2013
Are you ready for a wild 2013? It should be a very interesting year...
When the calendar flips over each January, lots of people make lots of lists. They make lists of "resolutions", but most people never follow through on them. They make lists of "predictions", but most of those predictions always seem to end up failing. Well, I have decided to put out my own list of predictions for 2013.
I openly admit that I won't get all of these predictions right, and that is okay. Hopefully I will at least be more accurate than most of the other armchair prognosticators out there. It is important to look ahead and try to get a handle on what is coming, because I believe that the rest of this decade is going to be extraordinarily chaotic for the U.S. economy.
The false bubble of debt-fueled prosperity that we are enjoying right now is not going to last much longer. When it comes to an end, the "adjustment" is going to be extremely painful. Those that understand what is happening and have prepared for it will have the best chance of surviving what is about to hit us. I honestly don't know what everybody else is going to do. Many of the people that don't see the coming collapse approaching will be totally blindsided by it and will totally give in to despair when they realize what has happened. But there is no excuse for not seeing what is coming - the signs are everywhere.
So with that being said, the following are 50 bold predictions for 2013...
#1 There will be a major fight between the Republicans and the Democrats over raising the debt ceiling. This will be one of the stories that dominates news headlines in the months of February and March.
#2 Most of the new "revenue" that will be raised by tax increases in 2013 will come out of the pockets of the middle class.
#3 No matter what "fiscal deals" the Democrats and the Republicans make in 2013, the federal budget deficit will still end up being greater than a trillion dollars for the fifth consecutive year.
#4 The credit rating of the U.S. government will be downgraded again in 2013.
#5 The Federal Reserve, along with major central banks all over the globe, will continue to wildly print money.
#6 There will be more criticism of the Federal Reserve in 2013 than at any other time since it was created back in 1913.
#7 The term "currency war" will be used by the media more in 2013 than it was in 2012.
#8 The movement away from the U.S. dollar as the primary reserve currency of the world will pick up momentum. This will especially be true in Asia.
#9 The economic depressions in Greece and Spain will get even worse and unemployment in the eurozone will go even higher in 2013.
#10 A financial crisis in Europe will cause officials to grasp for "radical solutions" that will surprise many analysts.
#11 The unemployment rate in the United States will be higher by the end of 2013 than it is now.
#12 The percentage of working age Americans with a job will fall below 58 percent by the end of the year.
#13 At least one "too big to fail" bank will fail in the United States by the end of 2013.
#14 By the end of the year, more people than ever will understand what "derivatives" are, and that will be because they have caused major problems in the financial world.
#15 We will see the beginnings of another major housing crisis before the end of 2013 and foreclosure activity will start rising once again.
#16 We will see another new wave of "tent cities" start to go up in communities around the nation before the end of the year.
#17 There will be another major drought in the United States this upcoming summer and there will be widespread crop failures once again.
#18 The massive dust storms that we have seen roll through cities like Phoenix in recent years will become even larger and even more intense.
#19 Traffic along the Mississippi River will be significantly interrupted at some point during 2013. This will be a very negative thing for the economy.
#20 Food prices will soar in 2013. This will especially be true for meat products.
#21 In some of the poorer areas of the globe, major food riots will break out. Governments will have trouble containing the civil unrest.
#22 There will be more genetically-modified foods in our supermarkets than ever before, and more Americans than ever will reject them and will seek out alternatives.
#23 The average price of a gallon of gasoline in 2012 was about $3.60. The average price of a gallon of gasoline in 2013 will be lower than that. Yes, you read that correctly.
#24 The number of vehicle miles driven in the United States will continue to decline in 2013.
#25 The Dow will end 2013 significantly lower than it is right now.
#26 When the final statistics for 2013 are compiled, U.S. share of global GDP will be less than 20 percent for the first time in modern history. Back in the year 2001, our share of global GDP was 31.8 percent.
#27 The U.S. Postal Service will continue to experience massive financial difficulties and will lay off personnel.
#28 As violence in our public schools becomes increasingly worse, more Americans families than ever will decide to home school their children.
#29 The Obama administration and Democrats in Congress will makean all-out attempt to pass gun control measures in 2013. When their efforts on the legislative front are stalled somewhat by Republicans in the House, Obama will use his executive powers to further his gun control agenda.
#30 One of the cities with the strongest gun laws in the nation, Chicago, had 532 murders in 2012 and it is now considered to be one of the most dangerous cities on the planet. By the end of 2013, the murder total in Chicago will be above 600.
#31 There will be an increasing amount of tension between state governments and the federal government. The issue of "states rights" will move front and center at various points in 2013.
#32 CNN will continue to sink to horrifying new lows. Piers Morgan will end up leaving the network before the end of the year.
#33 The number of Americans on food stamps will surpass 50 million for the first time ever at some point during 2013.
#34 The U.S. trade deficit with China in 2013 will be well over 300 billion dollars.
#35 The phrase "made in China" will increasingly be viewed as a reason not to buy a product as Americans become more educated about the millions of good jobs that we have lost to China over the past decade.
#36 We will see increasing cooperation between the governments of the United States, Canada and Mexico and border restrictions will be loosened.
#37 There will continue to be a mass exodus of families and businesses out of the state of California. The favorite destination will continue to be Texas, but Texas residents will become increasingly resentful of all of these new transplants.
#38 There will be some truly jaw-dropping examples of violence by parents against their own children in 2013. Many of these stories will make headlines all over the nation.
#39 The percentage of Americans that are obese will continue to rise and will set another new all-time record in 2013.
#40 There will be more war in the Middle East in 2013. But it will only set the stage for even more war in the Middle East in 2014 and 2015.
#41 U.S. troops will be deployed in more countries than ever before in 2013.
#42 Volcanic eruptions and major earthquakes along the Ring of Fire will make headlines all over the globe in 2013.
#43 Giant sinkholes will continue to appear all over the United States and all over the globe, and scientists will continue to struggle to find an explanation for why it is happening.
#44 The peak of the solar cycle in 2013 will cause significant problems for satellite communications.
#45 The U.S. government will put more resources into the surveillance of the American people than ever before, but most Americans won't mind all of this surveillance because they have become convinced that it is important to give up some of our liberties for more "security".
#46 Our infrastructure (roads, bridges, tunnels, airports, sewers, electrical grids, etc.) will be in worse shape by the end of 2013 than it is now.
#47 The percentage of "two parent households" in the United Stateswill continue to decline.
#48 "Political correctness" will reach ridiculous new heights during 2013, and more Americans than ever will start to rebel against it.
#49 There will be more anger at the wealthy in 2013 than at any other time in modern history.
#50 There will be some shocking political scandals in Washington D.C. in 2013. We will see some high profile resignations by the end of the year.
Once again, please keep in mind that I do not expect to be 100% correct about all of these things. I am just trying to put all of the pieces of the puzzle together just like everyone else is.
But I do hope to have a better track record than most of the other people putting out lists of predictions at the beginning of this year. So save this list and let's revisit it at the end of the year.
Do you have any bold predictions of your own for 2013? Please feel free to share them by posting a comment below...
*Post courtesy of the Economic Collapse Blog.
Stocks to soar as world money catches fire, Calvinst Europe left behind
Bears beware. A monetary revolution is underway.
9:43AM GMT 01 Jan 2013
The US, Japan, Britain, as well as the Swiss, Scandies, and a string of states around the world, are actively driving down their currencies or imposing caps.
They are tearing up the script, embracing the new creed of nominal GDP targeting (NGDP), a licence for yet more radical action.
The side-effects of this currency warfare -- or "beggar-thy-neighbour’ policy as it was known in the 1930s -- is an escalating leakage of monetary stimulus into the global system.
So don’t fight the Fed, and never fight the world’s central banks on multiple fronts.
Stock markets have already sensed this, up to a point, lifting Tokyo’s Nikkei by 23pc and Wall Street by 10pc since June.
The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 -- mindful though I am of flagging volume and a wicked 12-year triple top.
The Shanghai Composite will continue its explosive rally as China loosens the spigot again. The Politburo is reverting to its bad old ways of easy credit for state behemoths, and an infrastructure blitz, with $60bn of fiscal stimulus as well for good measure. Reform can wait.
Yes, we all know that China has added $14 trillion in extra credit since 2009, equal to the entire US banking system. It is trouble waiting to happen. But trouble can be deferred.
The more that investors come to think another cycle of global growth is safely under way, the riskier it will be to hold corporate bonds, $8 trillion in the US alone. With yields priced for deflation, that bubble is dangerous to own on 10-year maturities. The money will rotate into equities and bullion, with China’s central bank driving gold through $2,000 at last.
As a polar bear, I doubt that such a happy cycle is upon us. We merely have a rally within a structural trade depression.
The headwinds of deleveraging will return with gale force. The glut of excess global savings that lay behind the great crisis of 2008-2009 -- and that has kept us stuck in the Long Slump ever since -- is still getting worse. The international trading system remains badly out of kilter.
There is chronic overcapacity across global industry and not enough demand to carry a full cycle of economic expansion, or to reach "escape velocity" as they say these days.
Until that changes, every global rebound is doomed to disappoint within a few quarters, and that includes the cyclical upswing of 2013.
The world savings rate averaged 21.7pc in the early Noughties (IMF data). It was 23.1pc in 2010, 23.9pc in 2011, 24pc on 2012, and is expected to rise to an all-time high of 24.6pc in 2013, and then to a fresh peak of 25.5pc by 2015.
The old culprit is the East. The new culprit is the West. A string of states are tightening ferociously in concert, disregarding the feedback effects on each other. Britain has a fat primary deficit and needs to so. Euroland less. It is slashing for doctrinal reasons, in thrall to Calvinism.
Even so, there is enough monetary fuel in the global economy to pack a punch into 2013. A good gauge -- six-month real M1 -- has recovered briskly from the mid-2012 contraction in Brazil, China, India, Britain, and the EMU-core.
Japan’s new premier Shenzo Abe is sweeping into office like Roosevelt in 1933, commanding the central bank to do whatever it takes to defeat deflation, deliver 3pc NGDP growth, and drive the dollar-yen rate to 90.
The Bank of Japan is already boosting its assets by 7.5pc of GDP this year. It will have to do yet more to satisfy Mr Abe. If he means it, Japan is about to give us all a nuclear monetary shock.
The Fed is no slouch either. It is printing $1 trillion in 2013, even though the money supply is already catching fire. It is has cooked up a jobless target of 6.5pc, meaning anything it wants. If this caps the dollar in the process -- and safeguards America’s shale-driven manufacturing revival -- Ben Bernanke might allow himself a wry smile.
Modern currency wars are a form of `pass the parcel’. They increase global stimulus in aggregate -- Nouriel Roubini is wrong to call it a "zero sum game" -- but those left holding the package come off worst. Or as the IMF puts it delicately, global imbalances "rearrange themselves into a different geographical constellation."
Europe chooses not to play because Germany controls the machinery, and Germany does not yet need help. So Europe will take it on the chin, and the Latin bloc will endure another year of slow asphyxiation.
The EMU story of 2012 was whether the Nordics would expel Greece to set a salutary example. The larger story of 2013 is whether the victim nations will start to question why subbordination in a D-Mark export sphere is in their interest.
The bond yields that once led headlines no longer matter now that Germany has agreed to let the ECB act as a lender-of-last-resort for Spain and Italy -- on tough terms, of course.
The focus is shifting from financial froth to the political economy. Debt auctions are passé. We all watch the jobles rate and opinion polls these days. And the poll that matters most is the rising support for the Front National’s Marine Le Pen, champion of the French franc, already pulling even with Gaulliste rivals.
The euro will reach $1.44, just as austerity bites in earnest, a ruinous mix. As France loses 50,000 jobs a month --and its car industry -- François Hollande will agitate for use of Article 219 (2) of the Lisbon Treaty, exhorting the ECB force down the exchange rate. By then it will be too late. Scorched-earth policies will have destroyed is quinquennat.
Italy’s lira parties will not win the February elections. But a scotched Silvio Berlusconi will be more dangerous to the 2nd Monti commissariat on the outside, with his sharp media teeth. Italy will be ungovernable. But there will be no `Badoglio’ moment, no walking out, this year.
Spain’s jobless rate will ratchet up from 26pc to 30pc as Mariano Rajoy does what he is told, slashing and burning, in the midst of an accelerating housing crash. The anomaly is why the Left -- in Spain, and across Europe -- continues to back a reactionary EMU agenda that sets policy in the interest of creditors and drives youth unemployment rise to 55pc. La trahison des clercs.
It is always hard in socio-politics to foretell a snapping point. It can come suddenly, by a chance event, like Britain’s Invergordon 'mutiny’ in 1931, or the shooting of French dockers in 1935.
Yet I see little to disturb Europe’s grim status quo this year. The riots of 2013 will be just as ineffectual as the riots of 2012. Contraction will grind on. Germany's Wolfgang Schäuble will have his way.
Yet it will be a Pyrrhic victory. Euroland will be left behind as the rest of the world moves on, lagging US growth by almost 3pc of GDP for a second year, and certain to lag again in 2014, the "new normal".
This is the year when it will become clear to many that Europe is in far deeper trouble than supposed; that it risks tipping into irretrievable decline; that it is wasting its precious youth at the worst moment, as the aging crunch nears, when it should have none to spare; that it is resorting to ever more coercive measures and autocratic methods; and all to save a currency that is the elemental cause of the disaster in the first place, and should morally be broken into its democratically-controlled parts.
There is no place for a monetary dictatorship in 21st Century Europe.Clarity is a good start.