TOUCAN
11 years ago
The yuan is displacing the dollar as a key currency
The rise of the yuan
Turning from green to red
The yuan is displacing the dollar as a key currency
Oct 20th 2012 | HONG KONG | from the print edition
http://www.economist.com/news/finance-and-economics/21564880-yuan-displacing-dollar-key-currency
IN TOKYO last week the bigwigs of international finance paid close attention to a speech by Ben Bernanke, chairman of America’s Federal Reserve. His speech urged them, in effect, to pay less attention. Many policymakers in emerging markets complain that Fed easing destabilises their economies, contributing to higher inflation and asset prices. Mr Bernanke pointed out that emerging economies can insulate themselves from his decisions by simply decoupling their currencies from the dollar. It is their habit of shadowing America’s currency, however loosely, that obliges emerging economies to ease monetary policy whenever he does.
Policymakers may heed Mr Bernanke’s words—freeing them to ignore his decisions—sooner than he thinks. In a (more thinly attended) speech on the same day, a deputy governor of China’s central bank pointed out that China no longer hoovers up dollar reserves with its past abandon. And according to a new study by Arvind Subramanian and Martin Kessler of the Peterson Institute for International Economics in Washington, DC, the dollar’s influence is waning in the emerging world. Currencies that used to shadow the greenback are no longer following it so closely. Some are floating more freely. But in other cases they are steadily falling under the spell of a different currency: the yuan.
Some inflation-prone emerging economies, such as Ecuador, have adopted the dollar as their official currency. Others, such as Jordan, peg their exchange rate to it. These official policies are one measure of the dollar’s international role. Messrs Subramanian and Kessler use a different measure, based on the way exchange rates behave in the market. They identify currencies that tend to move in sympathy with the dollar in its daily fluctuations against a third currency, such as the Swiss franc. This “co-movement” could reflect market forces, not official policies. It need not be a perfect correlation. It need only be close enough to rule out coincidence.
Based on this measure, the dollar still exerts a significant pull over 31 of the 52 emerging-market currencies in their study. But a number of countries, including India, Malaysia, the Philippines and Russia, appear to have slipped anchor since the financial crisis. Comparing the past two years with the pre-crisis years (from July 2005 to July 2008), they show that the dollar’s influence has declined in 38 cases.
The greenback has in the past played a dominant role in East Asia. But if anything, the region is now on a yuan standard. Seven currencies in the region now follow the yuan, or redback, more closely than the green (see chart). When the dollar moves by 1%, East Asia’s currencies move in the same direction by 0.38% on average. When the yuan moves, they shift by 0.53%.
Of course, the yuan does not yet float freely itself. Since June 2010 it has climbed by about 9% against the dollar, fluctuating within narrow daily bands. Its close relationship with the greenback poses a statistical conundrum for Messrs Subramanian and Kessler. How can they tell if a currency is following in the dollar’s footsteps or the yuan’s, if those two currencies are moving in close step with each other? In previous studies, wherever this ambiguity arose, currencies were assumed to be following the dollar. The authors relax this assumption, arguing that the yuan now moves independently enough to allow them to distinguish its influence. But some of the yuan’s apparent prominence may still be the dollar’s reflected glory.
Outside East Asia, the redback’s influence is still limited. When the dollar moves by 1%, emerging-market currencies move by 0.45% on average. In response to the yuan, they move by only 0.19%. But China’s currency will continue to grow in stature as its economy and trading activity grow in size. Based on these two forces alone, China’s currency should surpass the dollar as a key currency some time around 2035, Mr Subramanian guesses. By that point, the Fed chairman will be the one pulling in the smaller audiences.
zsvq1p
12 years ago
When? What will trigger this prediction? Others in the world are our slaves. China stops buying... we stop importing. Why is that good for China? It's not. Our market is too large for them... 300,000,000 strong. The US a food making machine. Plus, our energy cost are low. Coal and gas is plenty.
I cannot say if we have meltdown. Nobody can. Seems to me since 1990 people said a market crash was coming. Nothing. Even 2008 did not hurt as many as I would have thought. Most folks have come back strong.
What to do?? Own your house I say. Pay it off. ... maybe buy a shotgun too... a few 9 mm.. lol...
Derivative Meltdown and Dollar Collapse
The frightening prospects from a derivative meltdown, well known for years, seem to deepen with every measure to prop up a failing international financial system. The essay Greed is Good, but Derivatives are Better, characterizes the gamble game in this fashion:
"The elegance of derivatives is that the rules that defy nature are not involved in intangible swaps. The basic value in the payment from the risk is always dumped on the back of the taxpayer. Ponzi schemes are legal when government croupiers spin loaded balls on their fudged roulette tables."
Under conventional international trading settlement, the world reserve currency is the Dollar. The loss of confidence in the Federal Reserve System causes a corresponding decline in value in U. S Treasury obligations. Add into this risk equation, derivative instruments that are deadly threats that can well destroy national currencies. One such response to this unchecked danger can be found in a Bloomberg Businessweek perceptive article, A Shortage of Bonds to Back Derivatives Bets, makes a stark forecast.
"Starting next year, new rules will force banks, hedge funds, and other traders to back up more of their bets in the $648 trillion derivatives market by posting collateral. While the rules are designed to prevent another financial meltdown, a shortage of Treasury bonds and other top-rated debt to use as collateral may undermine the effort to make the system safer."
However, what happens when buyers of Treasury notes abandon the reoccurring cycle of rollover debt and stop buying new T-Bonds? Take the Chinese example as a template for things to come. China's yuan hits record high amid US pressure, "The Yuan touched an intraday high of nearly 6.2640 to $1.0, according to the China Foreign Exchange Trade System, marking the highest level since 1994 when the country launched its modern foreign exchange market."
While it is old news that the Dollar consistently drops in purchasing power, the circumvention of typical trade agreements, that by-pass transitions using the Dollar as the currency of exchange, is relatively recent. The next report forewarns of a major departure from the post Bretton Woods global trade environment.
China And Japan Move Away From Dollar, Will Conduct Bilateral Trade Using Own Currencies, is one method to avoid the direct consequences of a derivative meltdown.
"The China Foreign Exchange Trade System, the division of the People's Bank of China which manages currency trading, said that the country will set a daily trading rate based on a weighted average of prices given by market makers. The People's Bank said on Tuesday that an initial trading rate would be set at 7.9480 Yuan for every 100 Yen at market in Shanghai. Unlike yuan-dollar trading, which only allows for a daily fluctuation of 1 percent in Yuan trading value, Yuan trading with the Yen will be able to move within a 3 percent range."
Timing of a Dollar reputation is almost impossible to pinpoint with precise market foreknowledge. Yet the inevitability that The Dollar is Doomed, refers to the insight of "Hans F. Sennholz in his essay - Saving the Dollar from Destruction - we are presented with a bleak financial future. Even under optimum conditions, the alternatives are not pleasant. Now let’s ask the 64,000 dollar question. What will happen when interest rates start to rise?"
The economic havoc, with the rise in interest rates, will greatly disrupt existing worldwide trade agreements and practices. In the article How The U.S. Dollar Will Be Replaced, Brandon Smith addresses the pragmatic measures undertaken by major trade partners to protect their domestic economies from a Dollar freefall.
"To those people who consistently claim that the dollar will never be dropped, my response is, it already has been dropped! China, in tandem with other BRIC nations, has been covertly removing the greenback as the primary trade unit through bilateral deals since 2010. First with Russia, and now with the whole of the ASEAN trading bloc and numerous other markets, including Japan. China in particular has been preparing for this eventuality since 2005, when they introduced the first Yuan denominated bonds. The bonds were considered a strange novelty back then, especially because China had so much surplus savings that it seemed outlandish for them to take on treasury debt. Today, the move makes a whole lot more sense. China and the BRIC nations today openly call for a worldwide shift away from the dollar:"
After historic downgrade, U.S. must address its chronic debt problems.
"Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth."
The derivatives time bomb lingers over every financial market on the planet. Reforms cannot remove excess and greed, from risk management fiscal contracts. When the largest foreign trading partners look to insulate their transactions from an unstable Dollar currency, the panic has already begun.
It should be self-evident that additional U.S. Treasury bailouts with unlimited Federal Reserve claims against every asset of collateral that can be attached, is obscene in its nature. Hedging is equivalent to reassigning betting risk to unfunded insurance underwriters that would never be able to pay off the claim. Governments are broke by almost any financial standard. Central banksters accumulate titles to real property and assets by hook or crook.
Nation states held hostage to financial manipulation are slaves to the central banks. With the demise of the Dollar, the fake debt obligations of the United States must be repudiated. Foreign states are prepared to sever their links to the Dollar reserve currency, by trading directly in the domestic currencies of other countries. Interacting commerce in Dollars with American companies will continue, but the yoke of Federal Reserve Notes legal tender will be rejected when the derivative meltdown explodes.
James Hall – October 17, 2012
zsvq1p
12 years ago
A Shortage of Bonds to Back Derivatives Bets
By Bradley Keoun on September 20, 2012 Tweet
Go Starting next year, new rules will force banks, hedge funds, and other traders to back up more of their bets in the $648 trillion derivatives market by posting collateral. While the rules are designed to prevent another financial meltdown, a shortage of Treasury bonds and other top-rated debt to use as collateral may undermine the effort to make the system safer.
Derivatives allow buyers to bet on the direction of currencies, interest rates, and markets, insure against defaults on bonds, or lock in a price on commodities. The new rules are rooted in the 2010 Dodd-Frank Act, passed in reaction to the near-collapse of the financial system in 2008, which was caused in part because derivatives contracts weren’t backed by enough collateral. American International Group (AIG) needed a $182.3 billion bailout from the U.S. government after it failed to make good on derivatives trades with some of the world’s largest banks. In response, Congress required that most privately negotiated derivatives transactions, known as over-the-counter trades, go through clearinghouses.
Clearinghouses, run by firms such as Chicago-based CME Group (CME) and London-based LCH.Clearnet Group, make traders provide collateral, including government bonds, that can be seized and easily converted into cash to cover defaults. Traders may need from $2 trillion to $4 trillion in extra collateral to meet the new requirements, according to Timothy Keaney, chief executive officer of BNY Mellon Asset Servicing.
The trouble is finding all that high-grade debt. The U.S. had $10.8 trillion in Treasuries outstanding at the end of August. Other countries, including Japan and European nations rated AAA or AA, had about $24 trillion of debt in the second quarter of 2011, according to an April report by the International Monetary Fund. Those government securities are already in heavy demand from central banks and investors.
The solution: At least seven banks plan to let customers swap lower-rated securities that don’t meet standards, in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” The maneuver allows investors who don’t have assets that meet a clearinghouse’s standards to pledge corporate bonds or mortgage-linked securities to a bank in exchange for a loan of Treasuries. The investor then posts the Treasuries—the transformed collateral—to the clearinghouse. The bank earns fees plus interest, and the investor is obliged at some point to return the Treasuries. In effect, the collateral is being rented.
That’s raising concerns among investors, bank executives, and academics that measures intended to avert risk are hiding it instead. “We just keep piling on lots of operational risk as we convert one form of collateral into another,” says Richard Prager, global head of trading at BlackRock (BLK), the world’s largest asset manager.
JPMorgan Chase (JPM) and Bank of America (BAC) are already marketing their new collateral-transformation desks, executives at the companies say. Other banks confirmed they’re planning to offer the service too, including Bank of New York Mellon (BK), Barclays (BCS), Deutsche Bank (DB), and State Street (STT). “Collateral transformation is a client service that does not hide risk,” says Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase. “It is a form of short-term secured lending, which has always been an important part of capital markets, subject to tight capital and liquidity rules and fully transparent to regulators.” Goldman Sachs Group (GS) also plans to offer collateral transformation, a person with knowledge of the matter said. A spokeswoman for the bank declined to comment.
For the banks, an expanded securities-lending market could generate billions of dollars in fees, even as the industry faces shrinking profits due to regulations that increase price reporting and competition in derivatives trading, according to a report from consulting firm Oliver Wyman Group. At the same time, they could suffer losses if a trader defaults and his collateral is seized. In that case, the bank loses its Treasuries and is left holding lower-grade bonds that the trader posted in the collateral transformation. The banks’ new lending business “smells like trouble,” says Anat Admati, a finance and economics professor at Stanford Graduate School of Business who studies markets and trading and advises bank regulators on systemically important firms. “The point of the initiatives on derivatives was that derivatives can hide a lot of risk,” Admati says. “Now they’re going to just shuffle the risk around.”
zsvq1p
12 years ago
China must buy our bonds.
Would It Really Matter If China Stopped Buying U.S. Bonds?
August 17, 2011 | 67 commentsby: Michael Pettis | includes: FXI, PGJ Is the PBoC going to stop buying USG bonds? Once again we are hearing very worried noises from various sectors about the possibility of a reduction in Chinese purchases of USG bonds. Here is what an article the South China Morning Post said:
China will press ahead with diversification of its US$3.2 trillion in foreign exchange reserves, the State Administration of Foreign Exchange (SAFE) said on Thursday, adding it does not intentionally pursue large-scale foreign currency holdings. Officials have long pledged to broaden the mix of the country’s huge reserves – as much as 70 per cent of which are now in US dollar assets, according to analysts’ estimates – but the process has been gradual.
“We will continue to diversify the asset allocation of our reserve assets and continue to optimise the holdings based on market conditions,” the foreign exchange regulator said in a statement, responding to questions about its reserve management from the public. It did not mention the US debt debacle. Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling US default and potential credit rating downgrade.
Xia Bin, an adviser to the central bank, told reporters earlier this month that China should speed up reserve diversification away from dollars to hedge against risks of the US currency’s possible long-term decline.
It sounds like this time the PBoC might be pretty serious about diversifying their risk away from USG bonds, right? Let’s leave aside the fact that every six months we have heard the same thing for the past several years, and nothing has happened, shouldn’t we nonetheless be worried? Won’t reduced PBoC purchases be hugely disruptive to the US economy and to the US Treasury markets?
No, they won’t. There is so much nonsense still being said about this, even by economists who should know better, that I thought I would try to address what it would mean if the PBoC were actually serious and not simply making noises aimed at domestic political constituents.
First of all, remember that the PBoC does not purchase huge amounts of USG bonds because it has a lot of money lying around and doesn’t know what to do with it. Its purchase of USG bonds is simply a function of its trade policy.
You cannot run a current account surplus unless you are also a net exporter of capital, and since the rest of China is actually a net importer of capital, the PBoC must export huge amounts of capital in order to maintain China’s trade surplus. In order the keep the RMB from appreciating, the PBoC must be willing to purchase as many dollars as the market offers at the price it sets. It pays for those dollars in RMB.
It is able to do so by borrowing RMB in the domestic markets, or by forcing banks to put up minimum reserves on deposit. What does the PBoC do with the dollars it purchases? Because it is such a large buyer of dollars, it must put them in a market that is large enough to absorb the money and – and this is the crucial point – whose economy is willing and able to run a large enough trade deficit.
Remember that when Country A exports huge amounts of money to Country B, Country A must run a current account surplus and Country B must run the corresponding current account deficit. In practice, only the US fulfills those two requirements – large financial markets, and the ability and willingness to run large trade deficits – which is why the PBoC owns huge amounts of USG bonds.
If the PBoC decides that it no longer wants to hold USG bonds, it must do something pretty drastic. There are only four possible paths that the PBoC can follow if it decides to purchase fewer USG bonds.
The PBoC can buy fewer USG bonds and purchase more USD assets.
The PBoC can buy fewer USG bonds and purchase more non-US dollar assets, most likely foreign government bonds.
The PBoC can buy fewer USG bonds and purchase more hard commodities.
The PBoC can buy fewer USG bonds by intervening less in the currency, in which case it does not need to buy anything else.
We can go through each of these scenarios to see what would happen and what the impact might be on China, the US, and the world. To make the explanation easier, let’s simply assume that the PBoC sells $100 of USG bonds.
The PBoC can sell $100 of USG bonds and purchase $100 of other USD assets. In this case basically nothing would happen. The pool of US dollar savings available to buy USG bonds would remain unchanged (the seller of USD assets to China would now have $100 which he would have to invest, directly or indirectly, in USG bonds), China’s trade surplus would remain unchanged, and the US trade deficit would remain unchanged. The only difference might be that the yields on USG bonds will be higher by a tiny amount while credit spreads on risky assets would be lower by the same amount.
The PBoC can sell $100 of USG bonds and purchase $100 of non-US dollar assets, most likely foreign government bonds. Since in principle the only market big enough is Europe, let’s just assume that the only alternative is to buy $100 equivalent of euro bonds issued by European governments.
There are two ways the Europeans can respond to the Chinese switch from USG bonds to European bonds. On the one hand they can turn around and purchase $100 of USD assets. In this case there is no difference to the USG bond market, except that now Europeans instead of Chinese own the bonds. What’s more, the US trade deficit will remain unchanged and the Chinese trade surplus also unchanged.
But Europe might be unhappy with this strategy. Since there is no reason for Europeans to buy an additional $100 of US assets simply because China bought euro bonds, the purchase will probably occur through the ECB, in which case Europe will be forced to accept an unwanted $100 increase in its money supply (the ECB must create euros to buy the dollars).
On the other hand, and for this reason, the Europeans might decide not to purchase $100 of US assets. In that case there must be an additional impact. The amount of capital the US is importing must go down by $100 and the amount that Europe is importing must go up.
Will this reduction in US capital imports make it more difficult to fund the US deficit? Not at all. On the contrary – it might make it easier. Why? Because if US capital imports drop by $100, by definition the US current account deficit will also drop by $100, almost certainly because of a $100 contraction in the trade deficit.
A contraction in the US trade deficit is of course expansionary for the economy. Since the purpose of the US fiscal deficit is to create jobs, and a $100 contraction in the trade deficit will create jobs, the US fiscal deficit will contract by $100 for the same level of job creation – perhaps even more if you believe, as most of us do, that increased trade is a more efficient creator of productive jobs than increased government spending.
In other words although there is $100 less demand for USG bonds, there is also $100 less supply (or more) of USG bonds. It is of course possible that the USG ignores the employment impact of the contraction in the trade deficit, and goes ahead and spends the $100 anyway, but in that case unemployment would drop even more than expected.
This is the key point. If foreigners buy fewer USD assets, the US trade deficit must decline. This is almost certainly good for the US economy and for US employment. When analysts worry that China might buy fewer USG bonds, in other words, they are worrying that the US trade deficit might contract. This is something we should welcome, not deplore.
But the story doesn’t end there. What about Europe? Since China is still exporting the $100 by buying European government bonds instead of USG bonds, its trade surplus doesn’t change, but of course as the US trade deficit declines, the European trade surplus must decline, and even possibly go into deficit. This is because by selling dollars and buying euro, China is forcing the euro to appreciate against the dollar.
This deterioration in the trade account will force Europeans either into raising their fiscal deficits or letting domestic unemployment rise. Under these conditions it is hard to imagine they would tolerate much Chinese purchase of European assets without responding eventually with trade protection.
The PBoC can sell $100 of USG bonds and purchase $100 of hard commodities. This is no different than the above scenario except now that the exporters of those hard commodities must face the choice Europe faced above. Either they can neutralize the trade impact of Chinese purchases by buying US assets or they have to absorb the employment impact of deterioration in their trade account.
This, by the way, is a bad strategy for China but one that it seems nonetheless to be following. Commodity prices are very volatile, and unfortunately this volatility is badly correlated with Chinese needs. Since China is the largest or second largest purchaser of most commodities, stockpiling commodities is a good investment only if it continues growing rapidly, and a bad investment if its growth slows. This is the wrong kind of balance sheet position any county, especially a very poor country like China, should be engineer. It simply exacerbates underlying conditions and increases economic volatility – never a good thing, especially for a poor and undeveloped economy.
The PBoC can sell $100 of USG bonds by intervening less in the currency, in which case it does not need to buy anything else. In this case, which is the simplest of all to explain, China’s trade surplus declines by $100 and the US trade deficit declines by $100 as the RMB rises. The net impact on US financing costs is unchanged for the reasons discussed above. Chinese unemployment will rise because of the reduction in its trade surplus unless it increases the fiscal deficit.
It’s about trade, not capital
This may sound counterintuitive to all except those who understand the way the global balance of payments work, but countries that export capital are not doing anyone favors unless incomes in the recipient country are so low that savings are impossible or the capital export comes with technology, and countries that import capital might be doing so mainly at the expense of domestic jobs. For this reason it is absurd to worry that China might stop buying USG bonds.
On the contrary, the whole US-China trade dispute is indirectly about China’s insistence on purchasing USG bonds and the US insistence that they stop. Because make no mistake, if the Chinese trade surplus declines, and the US trade deficit declines too, by definition China is directly or indirectly buying fewer USG bonds, and this reduction in bond purchases will not cause US interest rate to rise at all. If it did, it would be like saying that the higher a country’s trade deficit, the lower its domestic interest rates. This statement is patently untrue.
Inevitably whenever I write about trade and capital exports someone will indignantly point out a devastating flaw in my argument. Since the US makes nothing that it imports from China, they will claim, a reduction in China’s capital exports to the US (or a reduction in China’s trade surplus) will have no impact on the US trade deficit. It will simply cause someone else’s exports to the US to rise with no corresponding change in the US trade balance.
No it won’t, unless this other country steps up its capital exports to the US and replaces China – which is pretty unlikely. Aside from the sheer idiocy of the claim that the US does not produce, or is incapable of producing, anything it imports from China, the claim is irrelevant even if it were true. Trade does not settle on a bilateral basis but must settle on a multilateral basis. If the US imports less capital its current account deficit must decline, whether because of bilateral changes in trade or not. I explain this in a blog entry early last year.
The basic point is that if reduced intervention in Chinese capital exports causes a reduction in Chinese exports to the US to be matched dollar for dollar with an increase in, say, Mexican exports to the US, the story doesn’t end there. Since Mexico’s trade balance is itself decided by the relationship between domestic investment and savings, a rise in Mexican exports will mean a rise in Mexican imports. It may very well be that lower Chinese exports to the US are matched by higher US imports from Mexico, but this will come with higher US exports to Mexico. And if it isn’t Mexico, it will be someone else.
zsvq1p
12 years ago
Will China Stop Buying U.S. Debt?
20 September 2011 5 Comments
A few weeks ago, the Telegraph UK did a story about the sharp drop in foreign holdings of U.S. Treasuries. One of the big buyers of American debt is, of course, China. There are those that think China is forced to buy our debt otherwise its economy will collapse. Until the Treasury releases what is called “TIC” data (Treasury International Capital) in November, we really will not know what is going on. That is when the world will know for sure who is buying U.S. debt and who is NOT buying. Brandon Smith from Alt-Market.com thinks China is already heading for the exits when it comes to Treasuries. He makes a very good case for his point of view in the post below. Please read and enjoy. –Greg Hunter–
————————————————————-
Is China Ready to Pull the Plug?
By Brandon Smith Guest Writer for USAWatchdog.com
There are two mainstream market assumptions that, in my mind, prevail over all others. The continuing function of the Dow, the sustained flow of capital into and out of the banking sector, and the full force spending of the federal government are ALL entirely dependent on the lifespan of these dual illusions; one, that the U.S. Dollar is a legitimate safe haven investment and will remain so indefinitely, and two, that China, like many other developing nations, will continue to prop up the strength of the dollar indefinitely because it is “in their best interest”. In the dimly lit bowels of Wall Street such ideas are so entrenched and pervasive, to question their validity is almost sacrilegious. Only after the recent S&P downgrade of America’s AAA credit rating did the impossible become thinkable to some MSM analysts, though a considerable portion of the day-trading herd continue to roll onward, while the time bomb strapped to the ass end of their financial house is ticking away.
The debate over the health and longevity of the dollar comes down to one very simple and undeniable root pillar of economics; supply and demand. The supply of dollars throughout the financial systems of numerous countries is undoubtedly overwhelming. In fact, the private Federal Reserve has been quite careful in maintaining a veil of secrecy over the full extent of dollar saturation in foreign markets in order to hide the sheer volume of greenback devaluation and inflation they have created. If for some reason the reserves of dollars held overseas by investors and creditors were to come flooding back into the U.S., we would see a hyperinflationary spiral more destructive than any in recorded history. As the supply of dollars around the globe increases exponentially, so too must foreign demand, otherwise, the debt machine short-circuits, and newly impoverished Americans will be using Ben Franklins for sod in their adobe huts. As I will show, demand for dollars is not increasing to match supply, but is indeed stalled, ready to crumble.
China, being the second largest holder of U.S. debt next to the Fed, and the number one holder of dollars within their forex reserves, has always been the key to gauging the progression of the global economic collapse now in progress. If you want to know what’s going to happen tomorrow, watch what China does today.
Back in 2005, China began a low profile program to issue government debt denominated in the Yuan, called Yuan bonds, or “Panda Bonds”. This move was almost entirely ignored by establishment economists. They should have realized then that China was moving to strengthen the Yuan, expand its use in other markets, and recondition their economic structure away from export dependency and towards consumerism (as they have done with the establishment of the ASEAN trading bloc). Of course, in the MSM at that time, there was no derivatives bubble, no credit crisis, no debt implosion. America was on cloud nine. China, through inside knowledge, or perhaps a crystal ball, knew exactly what was about to happen, and insulated itself accordingly by generating distance between its system and the soon to derail retail based society of the U.S. This dynamic has not changed since the 2008 bubble burst, and Chinese activity is still the ultimate litmus test for economic volatility.
Today, there is widespread confusion in markets over the direction of America’s financial future. In the wake of the credit downgrade, most investors unaware of the bigger picture are desperately clinging to any and every piece of news no matter how trivial, every rumor from the Fed, and every announcement from the government no matter how empty. China’s economic news feeds have been tightly regulated and filtered, even more so than usual (which is cause for concern, in my opinion), while distractions in Europe abound. Let’s take a step by step journey through these issues, and see if we can’t produce some clarity…
U.S. versus EU: A Game Of Hot Potato…To The Death?
The theatrical seesaw between the U.S. and Europe is not only becoming obvious to the most narrow of economic analysts, it is also becoming kind of boring. The entire ordeal has been subversively exploited as a false example of systemic “contagion”, and with purpose; global banks need to convince average Americans and average Europeans that destabilization in one portion of the world will automatically lead to destabilization everywhere. This concept is true only so far as forced globalization and centralization have made it true. That said, the charade has been somewhat effective in conditioning the populace with ideas of collectivist survival. In other words, we are being trained to take fiscal responsibility for countries outside of our sovereign national boundaries as if we are morally tied to every penny they have or do not have (global socialism/feudalism – here we come!). This process is culminating in worldwide harmonization through fear as well as guilt.
What we are witnessing is NOT contagion. Instead, we are seeing multiple and mostly separate collapses activated simultaneously. Each nation suffering dire straights in Europe is doing so because of its own particular financial problems, not the problems of other countries nearby, and certainly not those of countries on the other side of the world. Contagion arguments are only applicable to those economies overly dependent on exports, yet, China has already shown (at least in the case of the U.S.) that such dangers can be controlled by minimizing exposure to the poisoned portions of the system and reverting to more internalized wealth creation.
Treasury Secretary Timothy Geithner and the heads of World Bank and IMF have perpetuated the lie of contagion between the U.S. and the EU primarily to service the progress of globalization, but also to hide the inflationary effects of dollar devaluation. While the greatest threats are stacked squarely against America’s economy and the dollar, somehow we have been led to focus on the comparatively less explosive drama in the EU. U.S. dollars, as well as Chinese funds, are flooding into Europe to support the region, while investment in the U.S. and its debt weakens and disappears. In the meantime, a weaker Euro makes the dollar look more attractive (at least on paper), but in reality, both currencies are on the path to bloody hari-kari.
How much longer can this game of hot potato go on? Again, China decides. Eventually, China is going to have to choose which currency to support; the dollar or the euro. Supporting both is simply not an option, especially when the chance of collapse in both currencies is so high. So far, the most logical path has been the euro. While the EU may suffer an astonishing breakdown, we must take into account that our own Treasury and central bank have seen fit to throw trillions of dollars into propping up Europe (with even more on the way):
http://www.reuters.com/article/2011/09/15/us-eurozone-idUSTRE78B24R20110915
With so much inflation and devaluation being thrust upon the dollar in the name of saving the EU, China’s move towards a stronger economic relationship with Europe at the expense of the U.S. is a no-brainer:
http://www.bloomberg.com/news/2011-09-14/china-willing-to-buy-bonds-from-sovereign-debt-crisis-nations-zhang-says.html
If I were to place a bet on who would come out of the crisis less damaged, my money would be on the EU, everyone else’s money certainly seems to be…
China Discreetly Moving To Dump U.S. Debt
China has been tip-toeing towards this for years, and has openly admitted on numerous occasions that they plan to institute a break from U.S. debt and the dollar in due course. Anyone who continues to argue that a Chinese decoupling from America’s economy is impossible at this point is truly beyond hope. Though increasingly more rare, news on China’s push to drop the U.S. still leaks out. Recently, a top advisor to China’s central bank let slip that a plan is in place to begin “liquidating” (yes, they said liquidate) their U.S. Treasury bonds as soon as possible, and reposition national investments into more physical assets:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/
But let’s step back for a moment and pretend China hasn’t told us exactly what it is going to do time and time again. Instead, let’s look at the fundamentals.
The primary concern in China right now is inflation. Because China does not yet have the ability to export its fiat to other markets the way the U.S. does, its own liquidity injections in the face of the credit crisis have led to severe price increases. In August alone, overall inflation was rated at 6.2% (always double government produced numbers to get true inflation). Food prices jumped 13.4%, while meat and poultry jumped 29.3%. Because these numbers are around 1% lower than in previous months, the Chinese government has prematurely proclaimed a “cooling period”:
http://www.telegraph.co.uk/finance/china-business/8751482/China-inflation-cools-as-food-price-rises-slow.html
With harsh inflation continuing unabated, eventually, the Asian nation will be forced to enact abrupt policies. This will likely take the form of a strong Yuan valuation, or a “floating” of the Yuan. A sizable increase in the value of the Chinese currency is the ONLY way that the government will be able to combat rising prices. By increasing the buying power of its citizens, the government allows them to keep pace with rising prices, and eases the tension within the populace which could otherwise lead to civil unrest. For China to ensure that a floating of the Yuan will lead to a much higher value, their forex and treasury holdings will have to fall. Period.
A dumping of the dollar will give the Chinese room to breath, and this space will be needed very soon. The debt ceiling deal made by Congress in the aftermath of the credit downgrade left the rest of the world unimpressed. While the MSM tries to make us forget that this event ever occurred, most foreign investors have not. Markets are anxiously awaiting an announcement from the Fed for further liquidity injections. If this announcement is not made after meetings next week, then it will certainly be made before the end of the year. Ironically, the same quantitative easing that investors are clamoring for today is liable to become the final signal for China to cut its losses and separate from U.S. securities completely. China has been positioned for many months now to take such measures…
Lights Out…
Delusions of Chinese dependency on the U.S consumer still abound, and those who suggest a catastrophic dump of U.S. debt and dollars in the near term are liable to hear the same ignorant talking points we have heard all along:
“The Chinese are better off with us than without us…”
“China needs export dollars from the U.S. to survive…”
“China isn’t equipped to produce goods without U.S. technological savvy…”
“America could simply revert back to industry and production and teach the Chinese a lesson…”
“The U.S. could default on its debts to China and simply walk away…”
“The whole situation is China’s fault because of their artificial devaluation of the Yuan over the decades…”
And on and on it goes. Though I have deconstructed these arguments more instances than I can count in the past, I feel it my duty to at least quickly address them one more time:
U.S. consumption of all goods, not just Chinese goods, has fallen off a cliff since 2008 and is unlikely to recover anytime soon. China has done quite well despite this fall in exports considering the circumstances. With the institution of ASEAN, they barely need us at all.
China is well equipped to produce technological goods without U.S. help, and if Japan is inducted into ASEAN (as I believe they soon will be), they will be even more capable.
America will NOT be able to revert back to an industrial based economy before a dollar collapse escalates to fruition. It took decades to dismantle U.S. industry and ship it overseas. Reeducating a 70% service based society to function in an industrial system, not to mention resurrecting the factory infrastructure necessary to support the nation, would likely take decades to accomplish.
If the U.S. deliberately defaults on debt to China, the global reputation of the dollar would implode, and its world reserve status would be irrevocably lost. We won’t be teaching anyone a “lesson” then.
Yes, China currently manipulates its currency down, but then again, so does the U.S. though quantitative easing. Both sides are dirty. Taking sides in this farce is pure stupidity…
Now that all that has been cleared up (again), the primary point becomes rather direct; the reason it is difficult to predict an exact time frame for an American collapse is because all the pieces are in place to trigger an event right now! There are, of course, stress points within the system that set a time limit, even on global banks and China, but a full spectrum catastrophe is not only a concern for some distant future. Every element needed for the so called “perfect storm” is ever present and ready to ignite at a moments notice. The destructive potential coming from China alone is undeniable. Everyday that the spark is subdued should be treated as a gift, an extra 24 hours of education and preparation. This is how close we are to the edge. It is not for us to be alarmed, but to be ready, and ever aware.
zsvq1p
12 years ago
When will china change? IF Mitt gets elected? He said it in the debate. "rules will change". The Obama connections may have kept China on a path keeping it's currency low? Oh what to do??? when must China's buying dollars end?
How does China Manipulate its Currency?
by Manshu on January 26, 2009
China’s currency manipulation remarks by Mr. Tim Geithner hit the front pages of all major newspapers last week. So let’s take a look at how China manipulates it currency.
To be fair to China, almost every country in the world manipulates its currency. In an ideal free market world – there would be no government intervention in the currency markets. However, there is hardly any Central Bank in the world that doesn’t intervene, when its currency starts to appreciate or depreciate beyond a certain price band.
Almost every Central Bank has a certain price band for its currency in its mind, and as soon as the currency goes beyond that band, governments start intervening in one way or the other.
This government intervention can be direct or indirect.
Buying Dollars to Keep the Dollar Price High
China has been interested in keeping the Yuan (Chinese Currency) undervalued relative to the US Dollar, and the easiest way (if you can afford it) to keep the Dollar price high, and the Yuan low is to buy dollars from the open market.
A country like China, which runs a huge Trade Surplus can afford to buy dollars in the open market to keep the demand for dollars high, and push the dollar price upwards relative to the Yuan. This keeps the Yuan undervalued.
Indirect Measures
There can be indirect interventions like putting a cap on the amount of foreign assets that locals can invest abroad. For example – India allows its residents to invest only up to $50,000 in foreign assets every year.
Other indirect measures can relate to taxation laws. For example – by allowing tax free repatriation of the Great Britain Pound – the British government can help boost inflow of Pounds in the country, and influence the exchange rate.
Why Does China Wish to Undervalue the Yuan?
China’s engine of growth is exports. The lower the value of the Yuan, the better it is for China’s exporters. Basically, if 1 Dollar buys 7 Yuans, and a exporter sells a Chinese Shirt for 10 dollars – he pockets 70 yuans. But if one Dollar was worth only 5 Yuans, the exporter would only be able to pocket 50 yuans.
By How Much is the Yuan Undervalued?
It is really impossible to tell by how much the Yuan has been undervalued, but estimates suggest that this range is between 15% – 40%.
A direct consequence of keeping the local currency undervalued is inflation, and since China faced rather high inflation rates in 2008 – it did plan to let its currency appreciate in 2008 (but that was before sub-prime).
How is the US Impacted?
It can be argued that the US is flooded with cheap imports from China not because China is really cost – competitive, but because China has artificially kept its currency undervalued. If the Yuan was allowed to appreciate – Chinese imports may no longer be cheap enough to compete with American produced goods.
On the other hand, it could really be that the Chinese are cost competitive, and it is really cheaper to produce goods in China than it is to produce them in US.
The truth probably lies somewhere in the middle.
US Stimulus Spending
The US runs huge trade deficits, and has plans for massive stimulus spending. The deficits mean that this stimulus spending can be done by either issuing more debt to foreign countries or printing more dollars.
If Mr. Geithner’s comments continue; they may aggravate China to such an extent that it stops showing up at the Treasury Bond auctions.
If that happens, then the US will have to resort to printing currency and quantitative easing on a scale that unleashes massive inflation.
It will be interesting to see how the situation unfolds, and how Mr. Geithner deals with China’s “Manipulation” – if and when he actually takes office.
zsvq1p
12 years ago
China, Russia, and the End of the Petrodollar
by John Rubino on October 9, 2012 ·
Say you’re an up-and-coming superpower wannabe with dreams of dominating your neighbors and intimidating everyone else. Your ambition is understandable; rising nations always join the “great game”, both for their own enrichment and in defense against other big players.
But if you’re Russia or China, there’s something in your way: The old superpower, the US, has the world’s reserve currency, which allows it to run an untouchable military empire basically for free, simply by creating otherwise-worthless pieces of paper and/or their electronic equivalent. Russia and China can’t do that, and would see their currencies and by extension their economies collapse if they tried.
So before they can boot the US military out of Asia and Eastern Europe, they have to strip the dollar of its dominant role in world trade, especially of Middle Eastern oil. And that’s exactly what they’re trying to do. See this excerpt from an excellent longer piece by Economic Collapse Blog’s Michael Snyder:
China And Russia Are Ruthlessly Cutting The Legs Out From Under The U.S. Dollar
China and Russia are not the “buddies” of the United States. The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.
They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.
Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.
You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.
Instead, the silence in the U.S. media was deafening.
However, the truth is that both Russia and China have been making deals like this all over the globe in recent years. I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar”.
A few of the things that will likely happen when the petrodollar dies….
-Oil will cost a lot more.
-Everything will cost a lot more.
-There will be a lot less foreign demand for U.S. government debt.
-Interest rates on U.S. government debt will rise.
-Interest rates on just about everything in the U.S. economy will rise.
So enjoy going to “the dollar store” while you can.
It will turn into the “five and ten dollar store” soon enough.
Some thoughts
Snyder goes on to note that both China and Russia are accumulating gold, which will protect them from the coming currency crisis and give the ruble and yuan greater legitimacy in global trade. In Jim Rickards’ book Currency Wars, he tells the story of financial war games conducted by the US military, in which one of the scenarios was a Russian gold backed currency that challenged the dollar. We’re apparently not far from that plan becoming feasible.
The US spends a big chunk of its $700 billion a year defense budget on dominating the Middle East in order to force the trading of oil in dollars. Let that trade be diversified into several currencies and the demand for petrodollars goes way down. Central banks and global corporations will sell part of their dollar holdings, sending the dollar’s exchange rate into a tailspin. This in turn will make it harder for the US to finance its military empire/welfare state.
The net result: America becomes Spain, no longer able to simply whip out the monetary credit card to cover its overspending. We’ll have to live within our means, cutting maybe $3 trillion a year in government largesse (including the growth in unfunded entitlements liabilities).
Cuts on this scale can’t be accomplished smoothly, as Europe is discovering. So in this scenario the coming decade will be even messier than the last one, with “Occupy” movements shutting down cities and every election producing incumbent massacres. A combination of higher prices for necessities and lower wages will demote much of the middle class to “working poor.”
Meanwhile, China and Russia will reap the rewards of stronger currencies, and will divide (or share) control over their part of the world. It’s hard to know who to feel sorrier for, Americans who thought they could depend on government programs for a middle class lifestyle, or the neighbors of China and Russia who will see the relatively light hand of the American empire replaced with something far more atavistic.
TOUCAN
12 years ago
Dollar Falls Most Since 2011 as Central Banks Bump Up Stimulus
By John Detrixhe - Sep 28, 2012 10:00 PM GMT-0600
http://www.bloomberg.com/news/2012-09-29/dollar-falls-most-since-2011-as-central-banks-bump-up-stimulus.html
The Dollar Index fell by the most since the first quarter of 2011 after the European Central Bank pledged to protect the euro from unraveling and the Federal Reserve committed to reduce unemployment via open-ended debt buying, which may debase the U.S. currency.
Since July 26, when ECB President Mario Draghi said he would do “whatever it takes” to save the euro, the 17-nation currency rose versus 15 of its 16 most-traded counterparts tracked by Bloomberg. Amid the Fed’s expansion of monetary stimulus, the Dollar Index lost 2.1 percent in the third quarter. The Bank of Japan, which followed the Fed and the ECB in expanding its balance sheet by 10 trillion yen ($130 billion), is scheduled to announce its next policy decision on Oct. 5.
“The ECB announcement to buy one- to three-year bonds in the periphery” shaped currency markets last quarter, George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in an interview. “It was the opening of a new chapter.”
The dollar fell 1.5 percent during the past three months to $1.2866 in New York and touched $1.3172 on Sept. 17, the least since May. The common currency weakened 0.8 percent to 100.21 yen. The dollar lost 2.3 percent to 77.96 yen.
Big Winner
Sweden’s krona appreciated more than all of its major peers versus the dollar this quarter, gaining 5.4 percent. The South African rand had the biggest quarterly decline, slipping 1.8 percent versus the greenback
Brazil’s real has lost 7.9 percent versus the dollar in 2012, almost three times the decline of the rand, the second- biggest loser. The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 8.4 percent this year.
The New Zealand dollar led all major currencies this month against the greenback, appreciating 3.3 percent. The real increased the least out of 16 counterparts versus the dollar, gaining 0.2 percent.
The euro has fallen 0.7 percent during the past three months against a basket of nine other developed-market currencies, including the yen, pound and Australian dollar, according to Bloomberg Correlation-Weighted Indexes. Japan’s currency has declined 2.2 percent and the greenback has lost 4.3 percent, the most.
Bond Buying
Spain’s cabinet produced its fifth austerity budget Sept. 27 amid speculation the nation will join Ireland, Greece and Portugal in requiring a financial bailout. It announced yesterday its banks have a capital deficit of 59.3 billion euros ($76.3 billion), less than previously estimated, according to a test designed to lift doubts about a financial industry hit by real estate losses.
The ECB said it may buy bonds with maturities as long as three years. Europe’s central bank said it planned to sterilize its bonds purchases, taking out as much liquidity as it injects, while the Fed announced unsterilized debt purchases, which increase the nation’s money supply.
Frustrated by the slow pace of the U.S. recovery, Fed Chairman Ben S. Bernanke announced Sept. 13 that the central bank would likely keep rates at a record low and purchase $40 billion of mortgage bonds per month in a third round of so called quantitative easing, or QE3, until the jobs market shows “sustained improvement.” The Fed is mandated to maintain price stability and full employment.
Dollar Index
Intercontinental Exchange Inc.’s Dollar Index, tracking the greenback against six major U.S. trading partners, declined to 78.601 on Sept. 14, the lowest since February.
“The Fed’s action to take their dual mandate that much more seriously in pursuit of additional measures was enormous,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said in a telephone interview. “It was one of the more substantive moves I’ve seen from the Fed in the last 30 years.”
Expansion of America’s gross domestic product is forecast to slow to 2.1 percent in 2013 from 2.2 percent this year, according to the median estimate of economists surveyed by Bloomberg. The unemployment rate dropped to 8.1 percent in August as Americans exited the workforce. The rate hasn’t been less than 8 percent since January 2009.
’Tail Risk’
“With Europe, we get talk about removing tail risks,” or potential crisis, Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said in a telephone interview. “Bernanke actually opened up the pocket book again. He’s actively expanding the money supply, debasing the currency.”
Growing risk for Japan’s economy to shrink this quarter and the failure of central bank loosening to dislodge deflation may increase pressure for officials to ease at either of two meetings next month.
Signs that a global slowdown is undermining a Japanese recovery prompted the central bank to unexpectedly expand its asset-purchase fund this month. BOJ Governor Masaaki Shirakawa and his colleagues gather to set policy twice next month, on Oct. 4-5 and Oct. 30, with Deputy Governor Hirohide Yamaguchi saying last week that the bank will take “bold steps” if necessary.
“The growth data is disconcertingly weak,” Deutsche’s Ruskin said. “Even the Bank of Japan tried to surprise” markets through further easing, he said.
China is scheduled to release its manufacturing purchasing managers index tomorrow, with economists surveyed by Bloomberg News predicting a reading of 50, the level that divides contraction from expansion. Fitch Ratings lowered its forecast for growth in China this year, citing a “deteriorating global growth outlook.” The credit rating company predicts China’s economy will expand 7.8 percent, compared with an earlier estimate of 8 percent.
The yuan strengthened 1.1 percent this quarter to 6.2847 per dollar.
TOUCAN
12 years ago
Billionaires Dump Stocks. Prepare for the Unthinkable
(READ the BLUE at bottom talks about UDN)
(good information, please note this is also an advertisement for a free book called "Aftershock") ... Watch Video @ http://w3.newsmax.com/a/aftershockb/video47.cfm?promo_code=FB1C-1
http://goingglobaleastmeetswest.blogspot.com/2000/08/link-snip.html
Transcript .. Snip ..
"Foreign currencies are a great play right now for investors. I like the Canadian dollar, Swiss franc, and the Nordic currencies, such as the Norwegian krone. Trading currencies directly can be pretty risky so that isn't for everybody"
And Snip ..
But let's focus on solutions now.
What should our viewers be doing right now to stay safe?
Bob:
First and foremost, I advise people to stay away from real estate. Real estate has not hit bottom.
Higher inflation, mortgage rates, and unemployment will suffocate the few breaths remaining in the housing market.
In my opinion, strictly from a financial standpoint, people should consider selling their homes while they still have a chance, and rent instead.
But I understand that's not practical for most people.
And, the emotional attachment to a home goes beyond financial matters.
So if you are stuck in an adjustable rate loan, I advise you to immediately refinance into a fixed rate. And I mean, right now.
Don't put this off until tomorrow.
John:
Should people staying in their homes, who have a fixed-rate mortgage, look to pay it down faster?
Bob:
Absolutely not.
Higher inflation in the future means you will be repaying a cheaper mortgage since the dollar will be weaker.
So stick to the minimum payment for now. Use that extra money for shrewd investments and paying down more important debt.
John:
What about non-real estate loans?
Bob:
The most important one is your car loan. Especially if you are still working.
An average car loan for Americans now is about $12,600.
So it's not a small chunk of change.
But a repossessed car is no good for you now, or when you need to secure financing for another one in the future.
John:
What about credit cards?
Bob:
Well many credit cards are simply adjustable-rate loans.
Even the fixed-rate credit cards have loopholes that allow them to hike your rates.
So when interest rates rise, so will the rates on many of the cards you are holding.
So pay these off as soon as possible.
If you take my advice and pay just the minimum on your mortgage now, you can use the newfound extra money to pay your credit cards down faster.
John:
How should our viewers approach insurance?
Bob:
Good topic for this discussion.
Once inflation hits 10 percent, all life insurance policies will be susceptible to very big losses due to their heavy exposure to long-term bonds, commercial real estate, and stocks.
Some insurance companies could even crumble.
So given our current situation, in my opinion, it does not make good financial sense to own whole life insurance.
If you do, you may be able to take out a lump sum payment now.
This will be much more valuable to you to properly invest now, than when inflation really kicks in.
Check to see your policy details on that though.
You can also focus on term life insurance instead, since it's much cheaper.
John:
It seems people are putting off retirement until later and later in life.
Wells Fargo recently released a survey that says people in their 50s on average only have $29,000 saved up for retirement.
And with Social Security, Medicare, and the unreported tens of trillions of dollars in future costs pressing down on our economy, the safety nets many have relied on may not be there in the years ahead.
So for our viewers, who may still be working and do not have enough saved up for a comfortable retirement, if we have a serious spike in unemployment, what careers will be the safest in the years ahead?
Bob:
This is truly a sad epidemic.
Given the pullback in income growth as well as other economic factors like inflation and a weakened dollar, the retirement age would now have to be raised to 73 for average Americans just to maintain the same standard of living as in the 1940s.
Since the average life expectancy is currently about 78, millions will now have to work until they drop dead, instead of enjoying their golden years.
Plus, Washington seems incapable of having an adult conversation on the entitlement issue.
So I personally see people working later and later into their lives, because they have no other choice.
However, jobs will be tight, especially for people over 55.
So for those seeking job security during the coming crisis, the necessities sector is the place to be.
This is composed primarily of healthcare, education, utilities, basic food, basic clothing, and government services.
Unfortunately, these aren't the highest paying jobs.
John:
Whether people are still employed or living off their investments, they are worried about the government taxing away more of their money.
So what can our viewers do to help protect themselves from higher taxes?
Bob:
Well, we need to see how this one will play out, and obviously our viewers should really build a specific strategy with their accountants.
But, I'd quickly recommend looking into estate planning, regardless of your net worth.
Because for tax reasons, giving gifts to your children and grandchildren now can be very beneficial.
And, you can get creative here by selling assets to buy gold to gift to your heirs now as opposed to in your will.
This will be much more valuable than cash or real estate when inflation hits hard.
John:
That's a good segue into investing advice.
So it seems you are a fan of gold still, even though it's been soaring in value.
Bob:
Yes!
I'm not a "Gold Bug" by any means. But I know what investments are right for different conditions.
Gold will continue to be a favorite safe haven for countries across the globe.
Right now, only 10 percent of the world's total gold is purchased by the United States.
Which puts us right in line with Turkey.
(more about gold .. refer to article)
John:
What about other investments?
Bob:
Other precious metals like silver and even platinum are good choices over the long run.
Until serious inflation hits, short-term bonds are OK.
After inflation really sets in, you will need to keep cash in short-term investments such as money markets, TIPS, and Treasurys.
Their low returns don't exactly make them very attractive, but they will protect you against inflation much better than longer-term debt.
I highly advise our viewers to stay away from long-term bonds.
Let me stress that again. Avoid long-term, government bonds.
John:
What about some unconventional investments our viewers may not have considered before?
Bob:
Foreign currencies are a great play right now for investors.
I like the Canadian dollar, Swiss franc, and the Nordic currencies, such as the Norwegian krone.
Trading currencies directly can be pretty risky so that isn't for everybody.
But you can buy ETFs on the major foreign currencies, like the euro, yen, Canadian dollar, and Swiss franc.
You'll want to hold them as longer term investments that'll appreciate as the dollar continues to fall.
You can actually buy an ETF called the UDN that trades all of the currencies in the US Dollar index against our currency.
So the weaker the dollar, the higher the UDN goes up. And, the more money you make. READ HERE: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78215806
John:
And what about advice for our more seasoned investors?
Bob:
A very large portion of the new edition of "Aftershock" addresses tips for investors of all shapes and sizes.
For example, the more-experienced investors may find a great deal of benefit reading up on what kinds of options we think are suitable for profiting during the days ahead.
Or how to properly take advantage of U.S. agricultural commodities.
Because when the dollar weakens, lots of countries will be buying our commodities with their stronger currencies.
"Aftershock" is perfectly suited for everybody, because along with all of these great investing tips, we also offer advice for real estate, personal finance, money management safe retirement, and even our viewers' careers.
We don't leave any stones unturned.
John:
I couldn't agree with you more Bob.
We've just scratched the very surface in this interview. These are all very serious topics that need more time than we have today to truly go through.
Bob, you are giving our viewers an incredible opportunity to build an unbreakable wall around their wealth that will protect them when the economy hits the very rough times you forecast in the new edition of "Aftershock."
TOUCAN
12 years ago
Death of the Petrodollar, & buy ETF ticker: UDN
READ MORE HERE: http://www.strategicinvestment.com/pages/svs/video/NDPCAP_REVAMP_VIDEO.php?pub=NDPCAP&code=LNDPN719
The dollar’s last great crash was in the ‘70s. Back then you could’ve turned a $50,000 portfolio into $120,000 - in a matter of years.
And if you used a standard technique in the currency markets, you could have made ten times that much, turning $50,000 into $1.2 million.
Problem was, at the time, there was no easy way to do that.
But today you can do it at the click of a button.
But this time, you won’t have to wait years for those kinds of gains…you could see them in just a matter of months. But you’d better make your move before September 21st. For example, one of these investments is a specialized (but simple) ETF (exchange traded fund). Its performance seeks to follow the Deutsche Bank Short U.S. Dollar Index. But it is an inverse ETF. It allows you to short the dollar against a basket of major currencies, which are set to rise as the Petrodollar dies.
The ETF is called the Powershares DB US Dollar Index Bearish Fund. And you can buy it at the click of a button from your online brokerage account. Or just call your broker. The ticker symbol is NYSE:UDN
Playing this inverse ETF is one of the safest and easiest ways to profit off the death of the Petrodollar.
From: James Dale Davidson
(Author of Blood in the Streets, The Great Reckoning and The Sovereign Individual)
PS Starting September 21st, 2012, our nation (along with its greatest export) will begin its final descent. This event will impact almost every aspect of your life: where you live…how you live…where you go on vacation…the car you drive… the way you invest…the food you eat…the products you buy…maybe even the contents of your prayers. It will be the reversal of everything you’ve come to know. But you still have a small window to rescue what you’ve worked so hard for. I understand the timing of this is extremely urgent, and I plead with you to take action today – and not to stand idly by, and let your lifestyle be stripped from you piece by piece.
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IMO, I am going to buy this and HOLD til around DEC - JAN
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Dollar index falls 1 percent, worst day in a month
NEW YORK | Fri Aug 3, 2012 11:14am EDT
http://www.reuters.com/article/2012/08/03/markets-forex-dollarindex-idUSL2E8J34NO20120803?feedType=RSS&feedName=usDollarRpt&rpc=43
Aug 3 (Reuters) - The dollar slid 1 percent against a basket of currencies on Friday after a U.S. report showing the biggest job increase in five months dented demand for safe haven investments.
The dollar index, which tracks the greenback versus six other major currencies, fell 1 percent to 82.498, on track for its biggest daily drop in a month.
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becareful with "commodities" or anything priced in the $ IMO
Many more folks point to the fact that commodities are priced in U.S. dollars-----------------------------------------------------------------
End Of The Road - How Money Became Worthless (2012)
Watch Trailer:
Go buy this or rent it .. worth the watch!
The new film “End Of The Road” has just been released for public viewing, featuring GoldSilver.com CEO Mike Maloney alongside Peter Schiff, Jim Rickards, Jim Puplava, James Turk, Eric Sprott and more. In 2008 the world experienced one of the greatest financial turmoils in modern history. Is the financial crisis over, or are we headed towards economic disaster? End of the Road is a financial documentary chronicling the fiat experiment known as the US dollar, its its journey towards its intrinsic value: Zero.
1. Fiat Money: http://en.wikipedia.org/wiki/Fiat_currency
2. Reserve Currency: http://en.wikipedia.org/wiki/Reserve_currency
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UDN charts!
http://www.dbfunds.db.com/
http://www.dbfunds.db.com/USdollar/index.aspx
http://www.otcmarkets.com/stock/UDN/company-info
[img]stockcharts.com/c-sc/sc?s=UDN&p=W&yr=3&mn=0&dy=0&i=p32227674817&r=1343963401551[/img
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6 years ago
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