About time. Wake up & smell of coffee.
 

The Economist 4/12/04, leading opinion piece.
I've been saying it for a long time, finally the economist echoes my view. You're on the brink. Let me put this as bluntly as possible, you idiots and by idiot, i mean every republican voter in the US have just re-elected a man who has brought your economy to the edge of disaster and shows no sign of backing off. I almost hope you reap the whirlwind just so the lesson sinks in.

For a while I was thought maybe the Iraq war was simply the expression of a strong dollar policy by a bunch of super-patriots. Then they decided to pay for the war by weakening the dollar, idiots, not even patriotic idiots.

Yeah, but at least all those queers aren't going to be able to get married now. That's the important thing.

furious consumer spending

This aspect of the matter is not limited to people who voted for anyone with an "(R)" after their title.

It is my belief that our economy has been a sham not just for the previous three years, but for the past decade and a half. The strength of the dollar was simply imagined, much like a stock price inflated by nothing but hype.

Another growing problem in America is the drastic increase in fiat spending by consumers.

Finance agencies and credit card companies are giving credit to just about anyone.

Nobody here cares about the actual price anymore. It's not a question of how much is the price, they just want to know how much the note will be.

That pretty much sums up a lot of the problem. It's also pretty well documented that savings by american citizens is remarkably lower than it used to be.

Glatt is entirely correct! The only way to solve this pressing financial crisis is to stop teaching evolution in the schools, and bring back prayer. Also, eliminating abortion will help reduce the deficit. Preventing homosexuals from marrying will ensure the stability of our families, and the production of the next generation of indentured servants, er, uh...citizens.

We should also increase hostilities throughout the world, because that will fuel the military-industrial complex and provide employment, possibly somewhere besides India. God wants us to do that, and He's on our side.

Which is itself fueled by asset price bubbles...
Of course that spending has also been encouraged by this administration which means when the crunch comes there's nothing to fall back on and debt suddenly dawrfs assets...

I recommend buying an ounce of gold per month if you can afford it, and when the shit hits the fan and people around the world realize the dollar is worthless because it has nothing to back itself up, you'll still have something of value to start a new life.

Just as soon as you can find someone to buy it off you in a world where the shit has hit the fan.

I have added some gold stocks to my investment portfolio and, so far, I am quite pleased by the returns. Who cares about the reality behind the perception? In the case of gold, anyhow, perceptions are fueling the market, and I've made a tidy sum off of them.

If the dollar crashes, it doesn't mean the world will crash, and it doesn't mean that gold will become worthless. There will always be people willing to buy gold. That's not a problem.

The shit won't really hit the fan that badly. Well, it's all kind of relative I guess. I mean part of this is practically certain to happen, unless the dollar stops dropping it's a matter of time before one of the Asian central banks propping it up decides it's time to start diversifying its reserves as the losses from US bonds mount. Of course whether that causes a panic is the real question. Either way I'm confident that Bush will go down in history as the worst president.

Gold is a wise investment in such a scenaroi - when the shit does hit the fan, every time, gold goes up.

I was dissapointed to find out that when you invest in gold, you don't actually get a piece of the gold. A piece of paper is no fun, I want a bar! Even if it is really, really, really tiny.

Actually you can buy gold coins or small bars of gold directly without having certificates. This is what I want to do. Buy Canadian gold coins, Chinese Pandas, South African Krugerands, etc. and you will sometimes add to the value because they are collectable. If you setup gold in your 401k or something, you'll get certificates, not actual gold.

Just to make this clear (without all the article and the much longer supporting one it isn't entirely clear). There are two options from here, Bush stands up, admits he's a halfwit with the IQ of a gherkin and the same comprehension of economics as a three toed sloth and those around him have been too bush fleecing the government to line their own pckets to care and instigate a massive program to reduce the budget deficit or continue as is and the dollar will slide, the housing bubble pops, interest rates rocket and the dollar ceases to be the reserve currency of choice for discerning central banks.

So, Jag, did they say who's most likely to step up to the plate? Whose currency are banks turning to?

Euro to a degree but more a diversified approach than a switch from one to another.

On the gold question, you can go down to your local coin shop and buy American gold eagles for the gold spot market price plus a small buyer's fee (usually around $15.00, at least when I purchased them) per coin. I have also acquired some coins along with my stocks and as of today, I could resell the coins at a nice profit even including the original buyer's fees.

As for Bush's economic policies, the jury is still out. The US economy seems to be making a slow but steady recovery, and the housing market here in Cali is booming - especially when it comes to industrial and office properties. What people around here refer to as the "inland empire" region of California is making an especially good recovery.

I find it rather difficult to share Jaguar's gloomy outlook - mine is one of guarded optimism. But then I'm just a valley girl, so what would I know?

The USD's still in the tank, though. Might just be a trailing indicator, might even be deliberate policy (a weak dollar hurts imports, which is why the Japanese banks try to prop the dollar up) .

I suspect the Europeans will eventually do something monumentally stupid (no, George Bush does NOT have a monopoly) and put the Euro in the tank instead. There's not going to be a wholesale rush from the dollar any time soon.

The idea behind US policy at the moment is that a weak dollar will offset the deficit. It's a flawed idea. It'll work but as the article points out, the cost will be huge - sharp recession and the dollar losing it's status. The US 'recovery' so far is based on asset price bubbles and a very dangerous level of consumer spending, both factors that will make and downturn much harder and sharper as interest rates rise.

What happens to the euro depends on what happens with the EU which at the moment is the new constitutional treaty, if that all goes to shit it's an open game.

Lets put some sound bytes to what Jaguar has posted. First an exact quote from Cheney in a senior level meeting titled "Economic Growth" in June 2002:Spend and spend more? Others versions are "pay now or pay later". Steal from Peter to pay Paul?

Why was Paul O'Neill (Sec of the Treasury) fired? He refused to go along with another money game - the second tax cut.

Companies that should be proclaiming serious losses have instead shorted their pension funds. It makes them look good now - in the hope that the economy will get better. Don't believe it. This is as good as it gets. Rediculously low interest rates are simply maintaining - not creating - jobs. Storm clouds overseas are growing ominous. For example, the central bank of China is said to have absorbed so many dollars (to protect their exports) that it is now 80% dollars. Sooner or later, they will have to dump that money - at the expense of your net worth. That is how economics works. A 40% drop in you net worth and income is how economic forces impose penalties for irresponsible fiscal activities. Why? Did Reagan really prove deficits don't matter - or is that an excuse to make them look good at the expense of your future?

Cheney and company discovered some real suckers - who forgot all the lessons of late 1960s and 1970s.

Anyone can mortgage a government when the people don't care. America said it is better to lie. Don't worry. Be happy. Sound bytes so that anti-Ameircans - people with ostrich mentalities - will support a mental midget president. So how will we pay for the attack on Iran? We refuse to admit how much we have already spent on Iraq. Those bills remain largely unpaid. Where will all this money come from? As always, the suckers always pay both big time and later.

These are the good times. How big is your cushion when world economic forces demand payment for all these past due bills.

Did you read Greenspan's last speech? They must be read slowly and carefully. He has been sounding a warning for some time in a hope to cushion the crash by easing us down. Number one problem he always points at - the George Jr wild spending sprees. Reality, only Democrats have displays fiscal responsibility. Republicans (except George Sr) have a bad habit of telling lies we believe.

Thanks, Troubleshooter -- there are some nice coins up for sale. I noticed most of them are not minted in the US, so does that mean that by purchasing with my US dollar that I will be losing out?

The problem with the idea that the dollar's decline is deliberate policy is that it assumes US policymakers have a far greater level of control over the dollar than they really do. There are reliable ways to devalue currency, but if the US govt was taking those than core inflation would be a big problem, and it isn't.

I don't see the US recovery being a false one; rather the opposite, the period of stagnation following the recession has been artificially lengthened by exceptionally conservative investors and board members (many in those overlapping groups having been burned by the dot.com bust) and of course terrorism and Iraq. The fundamentals are there and the capital is there but the willingness to take risks has been absent. This is also a large part of what has kept employment down.

The Euro is too potentially unstable to replace the dollar at this point; the US government is far more stable than the EU, and that's the dollar's big asset.

BTW, the original article's claim that a decline in the dollar amounts to default on government debt is more than a bit unreasonable; if you're going to invest in foreign-currency-denominated debt, the risk of that currency falling vis-a-vis your own is a normal one. If the US was taking the easy way out of just printing money, you could call it something akin to dilution, but that's not the case.

The U.S. Government is not stable, and will become part of the new EU when Bush signs the FTAA.

That's a matter of scale. 30% on tens of billions is noticeable you know. The US *is* printing money for all intents and purposes. Snow was jumping up and down today saying they'll cut it to 2% of GDP in the next four years, I don't swallow it.

That's the thing. The fundamentals *aren't there*. The numbers don't work, either the government reins in spending bigtime or the shit hits the fan, it really does boil down to that. As it stands the only reason interest rates aren't getting a rocket up the arse is the various asian central banks buying vast wads of bonds, if the dollar keeps sliding they'll stop and if the rate of debt keeps creeping up, as estimated, more and more will stop being willing to finance the reckless financial policies of this administration, a collective vote of non-confidence by the financial community in Bush.

You're not really buying other nation's currency as much as buying a coin with a known volume of a known tradeable metal.

The Economist magazine has had some articles lately about the sad state of American economic conditions. Cited as the most significant reason for this problem and one easily corrected is the Federal Deficit. US government is leaking money throughout the world by selling Treasury Bonds. One reason this problem has gotten everyone's attention is that countries such as Germany and China have decided to cut back on their T-bill purchasing.

Remember we paid very little for the liberation of Kuwait. We are throwing money at a 'we broke it' Iraq problem as if money were a grenade that solves all problems. Somebody has to pay our bills (because Cheney says deficits don't matter) - or our bills become even more expensive.

The first $trillion excess out there took about 10 years. The second $trillion has only taken 18 months. This second $trillion got the attention of our trading partners and T-bill buyers very quickly and recently.

A chart from this week's The Economist demonstrates the problem.

This Just In -
So it's spend, spend, tax rebate, spend spend.


So if I run up a $40,000 bill on my credit card it shows I am successful because someone was willing to extend me that kind of credit. :crazy:

At least Greenspan wouldn't compromise himself by saying something so stupid. Snow understands what it takes to be successful in the current administration. (Tony, can we have an ass-kissing smiley?)

No, no, a $40,000 debt is your problem. A $40,000,000,000 debt is your creditors' problem

In any case, the trade deficit (unlike the budget deficit) has nothing to do with either. There's no real debt involved; it never has to be paid back. I have a major trade deficit with Apple Computer, for instance, and we're both fine with that.