A thought to ponder Anyone?

Saudi Arabia did not following the recent US rate reductions - first time that has ever happened - and that alone led to speculation that they might be planning to cut the link of their currency to the dollar. (I posted this development somewhere at the time.) Now it is becoming much more clear that this will very likely happen. I honestly do not know what this will cause. Read:

"...The dollar earlier fell after the Gulf Cooperation Council, which includes Saudi Arabia, United Arab Emirates and Qatar*, said yesterday members will discuss a proposal next month to change their fixed exchange rates to the dollar. The case for a revaluation will be presented to heads of state in a summit in Doha, Qatar, on Dec. 3-4, Secretary General Abdul Rahman al- Attiyah told reporters yesterday in Riyadh, Saudi Arabia. ..."

19 Nov from:
http://www.bloomberg.com/apps/news?p....tI&refer=home

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*Six mid-east oil exportring nations will discuss the cutting of their dollar links at this meeting as the first paragraph of the above link notes. Perhaps they are thinking "there is strength in numbers." - I.e. the US can not invade them all as it has in the past when one (Iraq) started selling oil for Euros.

 

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Sorry I missed this post - was not avoiding it because it strongly argues against all of my "black cloud is approaching" Dollar, US & EU POV. (I will try to read and comment only your second link later.)

It is a long article and I only skimmed it. My overview is that it is mainly a strawman attack on the soundness of the Euro as an alternative to the dollar - and in this I tend to agree for the reasons he mentions but more importantly for one he does not. - Namely Russia has Europe by the "energy balls." Russian gas will go to Japan and China in the not too distant future. - About 1000 miles of the pipeline is already in the ground. Only the route of the eastern end is still in doubt - The shorter, more economical termination is still in Russia; but this is not including the cost of a liquification plant (which Japan will probably finance) to make LNG for tankers going to both Japan and China. Japan is lobbing hard for this choice. The alternative is a pipeline into China - China likes that choice.

The real, long-term, alternative for currency for world trade is the yuan. He only briefly mentions China after his long attack on his strawman in ONE, next to last, paragraph! In their entireity the last two paragraphs are:

"Which brings me to China, a country that is growing old before it ever becomes rich. The working-age population peaks in 2015 - just eight years time. China then dives into the steepest demographic decline ever known by any nation in peace-time. As for China's current boom, you need only know three things so see where this is going: credit is being channelled for political purposes through Communist state banks that are not subject to market discipline; almost half of GDP is going on investment, leading to a glut of factories; return on that investment, measured by the incremental capital output ratio, is 4.4. Much of it is being wasted. Compare that to Japan (3.2), South Korea (3.2), and Taiwan (2.7) during their growth spurts. China is not going to take over the world economy, now or ever. The window will close shut before they get there.

No, the 21st Century will be the American century, just like the 20th Century. Americans may have to tighten their belts a bit after all the sins of Alan Greenspan and the Clinton-Bush debt generation. But the dollar will still be the world's reserve currency long after the euro has disappeared and the yen has been forgotten... Now, the Indian Rupee? Hhm. Another day."

In an era of high automation and expensive energy, a static population or even a declining one is an ASSET, not a liability as he thinks. The simple fact is that the current US standard of living is not possible for China (or India) if their populations exceed 1 billion because the resources to support this do not exist on Earth. As I have been posting for more than a year, the day will come when it is to China's economic advantage to destroy the dollar, even though that will cause some loss in the purchasing power of their remaining dollar reserves and some* of their externally owned assets (in "sovern funds" accounts). (Lower prices for oil etc. with US and EU in deep depression will compensate for these losses in the long run.)

There will not be a "glut of factories" - he is idiotically assuming that if the US and EU do not buy the Chinese factory production that it will be impossible to sell it! The domestic population is basically debt free and just now learning what credit cards are. Western banks have been buying parts of the Chinese banking system, which WAS as he described an inefficient way to prop up the inefficient State owned enterprises. This inefficiency was almost needed back Mau's era to keep the workers employed. Now, however, China's problem is to find enough qualified workers - salary are rising rapidly and inflation also - China has raised the interest rates and/or bank reserve requirements at least 4 times (I think 5) in 2007 alone to fight the demand-driven internal growth inflation. (Price of pork has doubled in a year as more can now afford to eat it and production is down due to a spreading disease problem.) China will need even more factories to supply this growing domestic demand. In a decade, if they use credit cards, stop saving about 25% of their salaries, etc - a demand greater than the US's total purchasing power! (When the continuing and rapid drop in purchasing power of the dollar is considered. I.e. China can surpass the US by US dropping into deep depression as well as by four times the US's growth rate, which alone would take several decades.) The Chinese will be very hard pressed to both meet the domestic demand and honor the many long term promisses they have made to their future "economic colonies."

Long Summary: He mainly attacks his strawman, is ignorant of the well underway transformation of the Chinese banking system and ignorant of the fact that State owned business are now be closed (instead of "proped up") to free up workers and use them more productively, and his ROI data is wrong. Both because it is hard to measure and because there is practically nothing one can invest in for higher ROI than mines, railroads and ports in Africa and South America!

For two examples, China has a 30 year contract with the world's number one supplier of iron ore - Vale do Rio Dolce - here in Brazil that requires China to not only pay world price but also to expand mines, build railroads and ports to handle the ever increasing shipments - by 18% last year. Some Chinese factories will be sending port cranes, locomotives and hopper cars to Brazil. China and Brazil's Embraear (World's #3 maker of airplanes) jointly build them in China now and will be expanding the factory - huge and growing need for these "short haul" - 100 = or - 30 seater jets to tie Chineses cities together. Parts of these planes are still built in Brazil and shipped to China - Chinese factory goods will be increasingly coming to Brazil to pay for these wings and motors etc., etc.

Short Summary: He is not only badly ignorant about the real alternative to dollar developing but making false assumptions and fully distracted by a strawman of his creation.

PS, not ony is there little realism in this link, but there is some political distortion in his "the Clinton-Bush debt generation." Clinton ran net surplusses as he did not start any wars or give taxes back to the rich, setup expensive programs to transfer wealth from Joe American to the already rich, such as the Alcohol from corn nonsense etc. In contrast to GWB who will incease the debt by more than all prior presidents combined! GWB is why it is now too late IMHO, to avoid US falling into deep depression. If Clinton's policies were still in effect, US would still be the world's leader, the dollar sound and the US economy still increasingly prosperious. America's voters will pay dearly for their stupidity or perhaps more accurately for the Supreme Court awarding the election to the one who got the least votes..

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*Not those they are developing in Africa and South America - I.e. the ports, railroads, mines, financial institutions, schools, clinics, etc. that China is building outside of US and EU to faciliate their "economic colonies" being more efficient suppliers of the energy and and raw materials, which their still booming factories will require. It is just like the British building railroads in India nearly 100 years ago for the same reason.

 

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Up date on post 321:

There is currently a meeting of oil exporting governments in Riyadh, Saudi Arabia where according to CNN, five minutes ago, the main subject is the collapsing value of the dollar. One of the sheeks (CNN named him, but I have trouble with remembering those, strange to me, names) stated: "The dollar is a worthless piece of paper." That obviously in not currently accurate -quite an overstatement, at least for several years, I think, but perhaps not, if other sheeks agree with him. I still think it will be China, that triggers the run to get out of the dollar, sending US and EU into deep depression, but I could be wrong as to who acts first to do this.

It is sort of like back in the MAD era - Mutual Assured Destruction - there is even more advantage to the agent who acts first in "financial destruction," especially as in this case there is no assurance that the consequences will be a disaster for the first actor as was the case in the nuclear MAD. That assurance is only valid for thosewho are slow to act I.e. those who get stuck holding the bag of "worthless paper."

 

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I think they were talking about Iranian President Mahmoud Ahmadinejad comment:
http://sciforums.com/showthread.php?t=74072

 

No, I would have recognized and been able to remember that name.* This comment was not his although he has said that and worse.

BTW, the president of Columbia University in his hostile introduction of him was very much in error to call him "Iran's dictator." - he actually has very little power in Iran. The power is with the religious leaders and has been since they got rid of the CIA's Shaw of Iran.

*Later by edit: I think I was wrong. I.e. I now believe it was indeed Ahmadinejad's comment. Do not know why I fail to recognize his name when CNN reported this.

 

No, no, they didn't get rid of the Shah. They got rid of the other elements of the Iranian opposition, who together had already gotten rid of the Shah. The Ayatollah was in exile in Europe until well after the Shah was gone.

 

You may be correct, technically. I work from memory, but I am quite sure the Ayatolla Homainie (not spelled correctly I am sure) was invited back by the religious leaders, who supported him.

Fact that he did not personnally lead the ouster of the Shaw is like saying Ben lauden did not cause 9/11 as he was not even in USA at the time. Or like saying the CIA did not kill the elected president of Chille on another 9/11 because at the time all the CIA operatives were out of the country.

Again you chose to comment on a relatively unimportant point of my post. The point that this relates to was my "BTW comment" that the President of Columbia University was very wrong to call Iranian President Mahmoud Ahmadinejad a "dictator," when he holds a relatively powerless office. What do you say about this more important assertion of mine?

Fine details about exactly how Iran became a theoracy are not too important. I suspect that the CIA had a lot to do with the Shaw taking the "peacock throne." If true, or even just widely believed as it certainly is, that also had a lot to do with his downfall. (Few nations enjoy having the CIA select their government.)

 

Many different Islamic groups were allied together to participate in the revolution, and many other secular, marxist, etc. groups on top of that. Once the Shah was gone (which happened only halfway through the Iranian revolution), the various people he'd exiled started returning, including Khomeini, who was probably the most influential single personality in the pantheon of revolutionary figures. It should be noted that the parties who did support his return mostly did so under the assumption that he was "above politics" and so would work as a stabilizing islamist influence without directly competing with them for a slice of the pie. This turned out to be mistaken. At this point, there was still a provisional (monarchial) government in place, but the Shah had gone into exile, and the glue binding together the various revolutionary movements came apart, with differences on issues of secularism, socialism, etc. emerging. At this point, Khomeini set about consolodating power and eliminating the secular and Marxist components of the revolution. It is with the end of this process, a year later, that the Islamic constitution was set up and the revolution is considered to have ended.

Yeah, except that the former statement is true, while the latter is false. Maybe if 9/11 had been a grassroots political movement combining dozens of disparate social and religious factions this analogy would be worth considering.

While American opposition to Allende is well known, there's no proof that any part of the American government was complicit in the military coup, much less that anyone had intended for Allende to die in the air strike ordered by Gustavo Leigh. I realize that it's an article of faith in South America that the C.I.A. is lurking behind every corner, but that doesn't make it so and, moreover, this kind of paranoid, externalized narrative is exactly the phenomenon I'm attempting to illuminate here. To put it simply: it's easier for all sides of the Chilean polity to blame America than it is for them to come to grips with their own respective roles in their country's fate. This is why "anti-imperlialism" makes such an irresistable, dangerous implement in various countries, from Venezuela to Iran to Syria to North Korea.

Or perhaps I have a different perspective on which parts are important.

He's far from powerless. It's true that there are offices above him (the Supreme Ruler, obviously), but the President of Iran has real, significant powers in setting policy, influencing relations, etc. The Supreme Leader basically has a veto over his actions, but short of that he calls the shots. The label "dictator" is problematic, because obviously he doesn't wield ultimate power, and likewise doesn't enjoy and sort of cult of personality we associate with the classic dictator, and because his post is elected (although the process is far from free and fair), but it's a much worse distortion to suggest that he's some kind of figurehead.

For comparison, you could say that Dick Cheney has an essentially powerless office, but I don't think it would impress anyone.

No, but the basic narrative of who was responsible for the revolution is very important. It's a fundamental piece of the political discourse upon which the Islamic Republic is built. Getting this part wrong makes it impossible to understand the reality of politics in Iran.

First of all "Shah" is simply the Persian word for "King." When people talk about "The Shah" in these conversations, they're referring specifically to the last one, Mohammed Reza Pahlavi. There'd been a Shah on the Peacock Throne since about 500 B.C.. Pahlavi came to power when his father was forced to abdicate by the British and Russian invasion during World War II, who would have gone on to divide Iran amongst themselves as colonies had America not insisted on Iran's independence from the outset. The result was a government run by Shah Pahlavi, which was very friendly towards the West (recognizing Israel and permitting extensive British oil development, in particular). Ten years later, a guy named Moussadeq became prime minister on a platform of constitutional monarchy (which would have relegated the Shah to a ceremonial post) and nationalization (i.e., siezing all of the British oil developments, which pissed off the UK). So, the British Secret Service and the Shah turned to the United States, who agreed to support their coup plans because the Communists were siding with Moussadeq. This coup eventually worked out, although not without some hiccups, one of which included the Shah fleeing to Europe briefly.

 

I thank you for the detailed information about the ouster of the shaw and the internal struggles that ended with Khomeini in power. I learned from you again. (I trust your facts - we mainly disagree (often) on what they imply for the future when the facts relate to economics. The current slide of the dollar is more consistent with my interpretation of what the facts known a few years ago implied than yours has been.)

On the above text, I can correct you. As you do correctly observed, the role of the CIA in South America and Chille in particular, is well accepted in all this region.* What may not have recieved much attention in the US about 6 months ago was the release of some CIA files relating to Chille. (Some US group forced them out with the "fredom of information" act but they still had a significant part of the text blacked out.) The photostats were reproduced in my local papers for me to read in English (along with translations into portuguese). Most were cable exchanges but there were some policy papers etc.

One old CIA operative, mention in them was still living (in a Reston, Va. old folks home, as I recall.) The newspaper sent their reporter to visit him. He confirmed the texts and added considerable "local color" - regreted some of the things done and still defended the need for others things that the CIA did, as necessary at the time.

Summary: there is now amply proof that the fall of Allende was caused by the CIA from the CIA's own records, now public, but the full truth of that sordid program /era, which made military dictators possible in most South American nations has yet to come out with documentation from the CIA itself.

The "operation condor," which directly lead to 10s of thousands being killed, has documentation. It was found in Argentia about 4 or 5 years ago. It was a re-estate lawyer searching in old ownership records who accidently found it. It had been misfilled many years earlier and thus escaped the careful destruction that removed almost all local documentation during the last years of the Argentian and Chillian dictatorships. (Relative few fleed to Brazil and the Brazilian military is still holding back secret files from the dictator period.) Just like the Nazis, all these military dictatorships kept detailed records, but most were destroyed. Some of the Brazilian records were "accidently" destroyed or "lost" just last year when being moved. Some others became public when a disgruntled empoyee retired or was fired. (I forget which.) He had made Xerox copies for his own protection, but what he copied and took to his house was not very damaging to anyone now living.)

DNA tests have now found about 100 adults who were stolen from imprisoned pregnate girls and given to childless higher ups in Chille. (Their mothers were killed shortly after giving birth.) There are probable several hundred, if not a thousand, more that have never had any reason to check to see if they "parents" are really their parents. Slowly, most of the truth will come out and be accepted even in right-wing America, but that is probably 100 years into the future.
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*Also well accepted in most "anti-USA" groups, including the Islamic extremists. I think the reason why NYC's 9/11 happened on that date is 9/11 is also the date that the CIA indirectly killed the elected president of Chille (Allende). From their POV, the death of less than 3000 in NYC is not yet adequate revenge for the death of more than 50,000 the CIA caused or at least actively supported in cold war effort to rid South Ameria of the communist threat. (Allende was openly a communist.) I am sure the CIA has similar plans for Chavez now. (They have already tried once and failed.)

 

Not at all. I've always maintained that persistent trade and budget deficits would put downward pressure on the dollar, and the business cycle being what it is, we'd expect this to manifest in the aftermath of a boom (this time, housing). Your predictions only differ from my expectations in that they expect an upcoming business cycle to be fatal, due to some cataclysmic CCP dollar sale or the bad karma of SUVs or something. I've lost track of whether you're even predicting the current bust will be the fatal one?

And if not, aren't the next couple of years going to be a great time to shop for bargain dollar-denominated assets?

 

Go to the first post of my thread "Is today the start of the perfect financial storm? (caused by the "6L cycle") and you will see I then thought that the major central banks would be able to save the current dollar dominated financial system one time more. (It will fail in the next 6L cycle that has already started with the central banks pumping Liquidity out like crazy now.) Thus I continue to predict the the run on the dollar, which quickly sends US and EU into deep depression, will begin inside a 6 year window starting in October 2008 and ending October 2014.

I am not as confident of this window now that the gulf oil exporters are considering acting together to sell oil in Euros (or a currency basket that may include the dollar.) They, and many others, are also setting up sovern funds and transferring reserves out of dollars more quickly than I had anticiapted. (So far the central banks have failed to stem the tide agains the dollar, which is also driving the price of oil up as dollar goes down.) So I now think the first half of my window (Oct2008 till Oct2011) has a better than 50/50 chance of containing the start of the run against the dollar.

I agree with you that if one has good sense of timing there will be good opportunities to profit still, but I am not very good at market timing, (typically I act too soon) so I am a "buy and hold" investor. Some of my stocks are now 30+ years in my hands. PS most do not appreciate that this is an excellent way to defer taxes also (if stock does not pay much in the way of dividends.)

 

More "Some facts to ponder," (but this thread is a good place to put them):

America is not the “land of dreams” anymore; at least not for Brazilians. They are leaving the US, in mass at an accelerating rate. I.e. 1.1 million have returned to Brazil in the last 6 months (according to Brazilian government data printed page A16 of Folia do S. Paulo 5Dec07)! Planes leaving JFK for Brazil are already fully booked thru February 2008!

Brazil’s economy is booming and the Brazilian Real growing stronger almost every week against the dollar as the dollar sink in value against almost all currencies not pegged to the dollar; however, the relative trends in these two economies is not the only reason for this now spiking exodus of Brazilians from USA. Most of the Brazilians now leaving are also with no, or expired, entry visas. (In a typical case, it may be a decade since their original tourist visa expired.) Many are taking their US born, US citizen, children back to a country they have never seen or only visited briefly on holiday.

Some legally in US, but now leaving, have lost their homes in foreclosures. All want a “fresh start” where there is greater opportunity, at least for them. Some of the “New Yorkers” leaving were driving taxis or big rigs in the US but had problems getting their commercial chaffer’s license renewed. (It seem more papers are now required for this in the drive against “illegals.”) Most were significant contributors to the US economy, although not all were paying all the taxes that were due. (What taxi cab driver or waitress does?)

Very few collect any “welfare” while in the US. Most are from the upper class in Brazil, with valuable commercial skills, including speaking fluently several languages. Some Brazilians are still coming to US to work and study in the USA, but the “Brain Drain trade” between Brazil and USA has definitely shifted in Brazil’s favor, except at the highest levels.

There are many Brazilians still in the USA. Quite a few are maids and “nannies” One was “nanny” to one of my grandchildren for nearly a year so my daughter could work and pay very large tax bills. – That daughter is already several times a millionaire and once managed $4 billion for Delta airlines "defined benefit" pension fund. Profit and loss on that type plan goes directly to the “bottom line.” Several years her profits, were greater than the plane ticket profits, and why delta did not go bankrupt sooner. (She now takes private clients but they must have >$15 million that they can lose without a tear.) Point of this personal information is that a working maid or nanny, (i.e. not collecting welfare), can make a huge indirect contribution to the IRS’s tax revenue.

PS the world’s top paid fashion model is a Brazilian. She is not dumb. Now she only accepts payments in Euros. Brazil should do the same for what it sells. True, both could convert dollars to Euros, but there is a conversion cost in time, trouble and money especially if not done immediately while on average the dollar fall continues weekly.