The U.S. Economy: Stand by for more worse news

Discussion in 'Business & Economics' started by Brian Foley, Nov 28, 2010.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Reply 2 to:
    There is a very important difference between China and US's ability to cope with growing inflation:

    There are essentially no Yuan outside of China and only a few Chinese have credit cards. (Most do not even know what they are!) In the US I suspect the average American has at least three credit cards and there are vastly more green paper dollars outside of the US than held by resident Americans. The Russian mafia alone has more as do the Columbian drug cartels.

    Other foreigners of means hold several times more dollars than exist inside the USA. To use myself as an example, I have $10,000 in cash now. (I brought it back from my last visit to the US with intent to convert to Real but the Real is too strong now so I still have it.) When I was living in the US I rarely had even 100 dollar in cash as checks and credit cards were safer and provided a record of expenditures. Hoarding dollars is a well ingrained habit in most countries with a history of local currency inflation problems.

    What this difference means is that when China raises bank reserve requirement that is very effective inflation control, but when the US does the same it only effects a tiny fraction of the dollars so achieves next to nothing, especially when the dollar value starts to fall more rapidly than currently.

    Currently US raising bank reserve requirement would have zero effect as banks already have several times more than the requirement invested in US treasury paper instead of out as loans to the public.

    Currently the "velocity of money" is at a historic low, approximately zero. I.e. when, if ever, the banks do start to lend again the money in circulation will surge as will inflation. (Many more dollars chasing the same supply of goods). Then these foreign held dollars will be losing value and will be spent* or invested to stem further loss.

    I.e. A flood of dollars now outside of the US will enter and there is nothing the US government can do about it. (Other than the currently unthinkable declaration that the old dollars worthless as they have been replaced by newly issued dollars, which you get by exchange, in person, at the bank in a max limited amount.)

    It is impossible for China to have such a flood of Yuan into the county driving modestly increasing inflation into hyper-inflation which the US govern cannot control (except as just noted by the in person issue of new dollars for old).

    *This is a financial instability that will feed on itself so will not last long.Thus what the foreigners will be buying is natural US assets, like coal fields, farm land, etc and already existing exportable goods like airplanes, cars, steel rails, computers, etc. In a month or so they will have dumped all their dollars for whatever of lasting value they could buy, even canned beans and bullets. Many US factories making goods for export will have zero inventory left and the foreigners will have spent their dollars so their buying stops.

    This is not a way to get US factories hiring again. The US instead sinks into long lasting depression as the savings of Americans have been destroyed, so no one is buying anything.
    Last edited by a moderator: Dec 23, 2010
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  3. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    In some recent post somewhere, which I cannot find, I told that the US would soon (a couple of years) lose the oil it now imports from Venezuela. Chavez would love to cut the US off now but cannot as his heavy oil must be refined in the gulf coast refineries that were designed for it. I also noted that three refineries are now being constructed in Venezuela which will be able to process his heavy oil into higher value product. One by PetroBras that will have 40% ownership of it and two by China. Venezuela will get 40% ownership of an essentially identical one being built in Brazil.

    In that earlier post I note that to give these gulf coast refineries crude to process after they are cut off, there was expected to be a large new pipeline bringing shale oil heavy crude down from Canada, but had no link to that at the time. Here is more (map and some text) on the pipeline planned for when Chavez can cut the US off from about 12% of its oil supply:

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    "...The State Department is set to issue what could be a final ruling to allow a massive new pipeline expansion from central Alberta to the Gulf of Mexico. ... Known as "Keystone expansion," {DASHED LINE IN THE MAP} the project is an expansion of an existing pipeline that now terminates in Oklahoma. Stretching over 1,600 miles -- four times the length of the Trans-Alaska system -- the new pipeline would be one of the biggest in the country. ..." From:

    SUMMARY: Here again is another example of how China is "eating the US's lunch" (or oil in this case.) High speed rail exports is another. trade with S. Korean, yet another, not to mention most of the rest of Asia as China increasing supplies their hi-tech needs in trade for their cheap labor, low value added, components China imports from them. China/ India just agreed to expand their trade to 100 billion dollars value per year, but they don't plan to use dollars. China agreed to import more from India so the trade is balanced. (Currently China has a trade surplus with India settled in dollars.)
    Last edited by a moderator: Dec 24, 2010
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "... Look at what the Federal Reserve is doing: It’s creating enormous amounts of money – almost $2 trillion in the last 24 months. Altogether, the government has already guaranteed $12.7 trillion in mortgages and debt. And by buying more Treasuries, the Fed is monetizing U.S. debt by supplying credit to the U.S. government. That’s the No. 1 action to take if you want to guarantee hyperinflation. It’s Zimbabwe finance... straight out of the Mugabe playbook.

    The Fed’s actions are not only wrong-headed, they’re criminal. It’s paying back old debt with new money, a veritable Ponzi scheme. It’s the inevitable endgame for every paper currency. And the Fed isn’t about to take its foot off the accelerator… until it’s too late. In fact, inflation has already reared its ugly head, and it’s only going to get worse.


    Billy T comment: China's inflation seems to have peaked at 5.1% but their meassure includes food and energy prices while the US's inflation (core inflation) does not. China's inflation seems to have been controlled but US is rising, even without including the faster rising cost of food and energy.
    Last edited by a moderator: Jan 4, 2011
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  7. nietzschefan Thread Killer Valued Senior Member

    Incidentally, if that pipeline doesn't get passed, we are going to build another pipeline (which might happen regardless) to Prince George B.C - a port town on the west coast. Then tanker the petro products to China. Dirty oil is dirty oil whether you use it in the U.S or China. Thank the moral high ground for that one. China doesn't need to be "clean" for some reason, they are forgiven.

    Also Oilsands production isn't as dirty as most people think. It's a tough sell when you have blue sky to the horizon anywhere in the Canadian Prairies.

    I'd rather we(Canada) sell to China anyway, the U.S isn't gonna be able to pay it's energy(glut) bills one day. China's economy is slow and steady, that's a good customer
  8. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "... From 1969 to 1980 the dollar lost 96% of its value in terms of gold and 92% in terms of oil. The stock market was no safe haven: The Dow's nominal value in 1980 was the same as in 1969, meaning it lost similar value against gold and oil.

    In the current cycle, the dollar and the Dow began deflating in 1999. With gold at $1,400 and oil at $90, the dollar and the Dow have declined by nearly 80% against both. To match the 1970s, they would have to lose another 80% against gold and another 60% against oil, implying gold at $7,000 and oil over $200. Given that the current monetary abuse is far worse than in the 1960s and 1970s, these figures are conservative.

    Bretton Woods II is collapsing. The seductive Keynesian policies that fiscal and monetary authorities have followed for decades will soon cause the end of dollar hegemony. The United States is entering its third consecutive year of deficits greater than $1 trillion coupled with continuing dramatic increases in the stock of money. Devaluation and economic chaos are guaranteed, just as they were in 1969. ..."

  9. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    An observation by Mohamed El-Erian, chief executive officer at Pacific Investment Management Co:

    “…The U.S. dollar, which typically rises in times of political unrest, was little changed against the euro, trading at $1.3663, while currencies such as the Swiss franc rallied on demand for a refuge from geopolitical turmoil.*

    The performance of the dollar is “a warning shot to America that we cannot simply assume flight to quality, flight to safety,” El-Erian said in the Bloomberg TV interview. “People are starting to worry about the fiscal situation in the U.S. They are starting to worry about the level of debt.”

    The franc jumped 1.1 percent to 1.2814 versus the euro in New York trading after earlier reaching 1.2792, the strongest level since Jan. 31. “We cannot assume that we will maintain the standing of the reserve currency as we have done in the past,” El-Erian added. …”
    Rest at:

    *Billy T adds gold and silver surged up too. Here from post at:
    is some discussion as to how the US dollar may rapidly lose it status as the main currency in Central bank reserves:
    Last edited by a moderator: Feb 23, 2011
  10. Me-Ki-Gal Banned Banned

    is that true? Are you talking about now or back during the potato famine?
  11. joepistole Deacon Blues Valued Senior Member

    If you are a fixed income investor, you have a lot to worry about because interests rates are going up. They are about as low as they can get now. So the only real long term direction for interest rates is up. And that is going to hurt existing fixed income investors.

    If the economy continues to recover, interest rates are going up because of the increased demand for money. Geopolitical risk can cause commodity prices to rise - demand pull inflation (inflation caused by an imbalance in supply and demand). So the outlook for fixed income investors is not good. But if you were a fixed income investor over the course of the last few years, it was great as interest rates fell across the board. Those days are over.
  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Not yet the "run on the dollar" I long ago predicted will happen before Halloween 2014 - just the start of a still "orderly walk" towards the exit door:

    "... Oil-exporting countries are cutting holdings of U.S. government debt as energy prices rise, helping depress the dollar, the worst-performing major currency of the past six months. Treasuries owned by oil producers and institutions such as U.K. banks that are proxies for Middle East nations fell 9 percent in the second half of 2010 to $654.6 billion, the first decline in the final six months of a year since the Treasury Department began compiling the data in 2006. ..."


    Billy T comment: Like all instabilities, this walk will accelerate as others, some months from now, wish they too had acted with these oil exporters; however, they will then conclude it is better act ASAP, before they loss even more. - I.e. once the walk to the door becomes a little faster, it rapidly converts into the run as this is a positive feed back system - Get out of dollars before others do and hurt you more.

    A few more facts (another paragraph) from the above link:

    "...The appeal of the dollar has diminished as the Federal Reserve keeps interest rates at almost zero, prints cash to purchase $600 billion of bonds in a policy known as quantitative easing and the budget deficit holds above $1 trillion. The currency fell to 61.3 percent of global foreign-exchange reserves in the third quarter, from a peak of 72.7 percent in 2001, the latest International Monetary Fund data show. ..."

    More comments by BT:
    That is a 16% drop in 10 years, but you ain't seen nothing yet because China appears to be starting to move dollars into gold and silver:
    Above condensed from:
    Last edited by a moderator: Mar 14, 2011
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    More on the "orderly walk" away from the dollar discussed in post 69:

    Japan holds 2nd (I think) greastest amount of US Treasury paper, but needs to spend many billions on repair and rebuilding (as well as import more fuel for at least five years, to replace the nuclear electricity lost). U.S. Treasury Secretary Timothy Geithner said on Tuesday that he doesn't think Japan will unload their $885.9 billion in U.S. treasuries to do this.

    Why not? They are not fools who will continue to watch others get out of dollars first.

    For example, the latest SEC filing shows that The world's largest bond fund, run by Bill Gross, did get 100% out of US Treasury paper (to avoid more losses when QE2 ends in June he has explained). I.e. The the FED plans to stop buying Treasury paper in June and no one will buy any until interest rates are higher (bond prices much lower) - Gross did not want that drop on his bond so sold them all now.) The latest treasury auctions of bonds drew little foreign interest - they usually at least bid for the total issue but of course don't ever buy it all as some of their bids are too high. Foreigners now buy less than 30% and the FED at least 70%. At current interest rates offered, soon only the FED (and a few insurance companies with dollar fixed future obligations)* will be buying Treasury Issue.

    * They don't care is when your widow collects $10,000 from your life insurance, it will only pay for a dinner at Big Mac's and a movie. The policy is for a fixed number of dollars, not purchasing power.

    Note dollar going down in purchasing power is price of everything in dollars going up. See that here: "The Labor Department reported the Producer Price Index (an indication of inflation at the wholesale level) for February rose by +1.6%, which was above the consensus estimate for +0.6% and above January’s +0.8% (December: +1.1%, November: +0.8%, October: +0.4%)."


    And note the trend from October's 0.4%...0.8%....1.10% ....1.6% in February 2011.

    "... investors jeered news that new home construction fell to the second-lowest level on record last month, as well as data showing the biggest increase in food prices in 36 years. " - This quote is not "off thread" as both can still get worse.
    Last edited by a moderator: Mar 16, 2011
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., bet against U.S. government-related debt last month and boosted cash to be the largest of the Total Return Fund’s holdings.

    Pimco’s $236 billion fund had minus 3 percent of its assets in government and related debt, {I.e. a “short” position} after reducing the position to zero in February, the Newport Beach, California-based company said on its website. Cash and equivalents* rose to 31 percent from 23 percent, making it the largest component for the first time in four years.
    Gross has said he is concerned about what will happen when the Federal Reserve stops buying Treasuries…

    From: See paragraph 4 of prior post 70 also.

    Billy T comment:
    He should be as the FED has recently been buying 70% of all Treasury bonds. Interest rate must significantly rise to attract others to buy what the FED is not. Interest rates UP is bond prices DOWN, however, IMHO, the FED’s buying will not actually stop at end of June as sharp rise in interest rates will send the already weak economy into a steep down turn (and the jobless rate back above 10%, IF honestly stated).

    FED, probably will not call this new block of buying treasury paper “QE3” but that is what it will be. Calling it QE3 is too much an admission that there will be no end to the FED printing money out of thin air, but that too is the case. The US cannot be honest and admit it is going to pay the debt the only way possible – destroy the value of the dollar by “monetizaton” of the debt. Even just admitting that the US no longer has a “strong dollar policy” would trigger and immediate “run on the dollar”, but the current lying about US dollar policy can only continue for a couple of years more , at most. There will be a run on the dollar before Halloween 2014, regardless of what the Secretary of the Treasury says – Actions speak louder than words.

    *The "equivalent" in "cash and equivalent" usually means government bonds, but obviously not in this case. What is it? Gold? Chinese bonds? When Bill Gross thinks it is not safe to hold US bonds, where does he "park his cash" to get a safer return?
    Last edited by a moderator: Apr 11, 2011
  15. joepistole Deacon Blues Valued Senior Member

    Given the current level of political risk (i.e. Tea Party/Republican irrational behavior) associated with US debt, the Fed may have no choice but to continue to buy US debt in order to keep rates low and the recovery on course.
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    We agree on the FED's probable actions. I said:
    However, I'm not willing to call Republicans "irrational." Certainly both parties are more concerned with the coming election than with the welfare of the country and that has been true for decades.

    For example, the Republicans are trying to win favor with the anti-abortion voters by cutting funding for Planned Parenthood, even though only a tiny part of their funds pay for abortions and the health of thousands of women wanting only information about birth control will be adversely effected. (Lacking this information, will probably INCREASE the number of "coat hanger" or "back alley abortions" with many injured poor women then appearing at hospital emergency rooms, at great cost to the public.) Thus, I would call that particular cut at least counter productive, if not irrational. It will not only cause quite a few deaths, but add to the national debt as they can not pay for these costly emergency room services.

    On the other hand, Republicans, in general, hold the defense budget as un-touchable, even though it totals about the same as all other nation's defense budget combined. Surely it could be cut in half and still leave the US with the world's most capable military. Cutting it would do the country no harm (except for some job losses in the military/ industrial complex Eisenhower correctly warden was a great danger to the US). Cutting it by half, would reduce the deficits by more than 100,000 times what cutting Planned Parent hood cuts could save, especially as services provided by Planned Parenthood very likely are making a net reduction the debt by prevention of many medical costs, especially in hospital emergency rooms.

    In general, Democrats do seem to think that more federal spending solves all problems, despite historical evidence that in some case it only makes problems worse. - The road to hell is paved with "good intentions."

    I am not too concerned with exactly which road the US takes to Hell as I have been convinced for more that four years that is the only destination now available for the US economy, with its huge (14 trillion debt to increase to 15.7 trillion this year) unpayable debt. It will be interesting to see if England's austerity approach works, but it is too late, IMHO, for the US to try that.
    Last edited by a moderator: Apr 11, 2011
  17. joepistole Deacon Blues Valued Senior Member

    I understand your point of view. But sacrificing the nation for an election is not rational from my perspective.
    There are certianly segments of the Democratic Party who hold that belief. But over the course of the last few decades, I think main stream Democrats have come to know that federal spending is not a cure for all the nations ills.

    Both of our political parties need to learn that government is not the solution for all that ails our society.

    Highway to Hell baby.

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  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    It is quite rational if re-election is your primary goal, as it has been for the majority of US politicians. Sadly, this has been more American than apple pie for at least two centuries, but fiat money has now made it lethal:

    From: Read this OP. It also explains why China will not collapse via printed money as it is not a democracy and is ruled mainly by economists and engineers, not lawyers, etc.
    Last edited by a moderator: Apr 11, 2011
  19. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    Re-election is supposed to be the primary goal of all politicians in any democratic system. The alternative is that their primary goal will be to permanently entrench their power in some other way. Expecting that politicians will make "the greater good" their primary goal - and actually attain and retain office - is just plain stupid.

    It follows that the election cycle/term limits place finite horizons on the calculus of any given politician subject to them. That is their point - to ensure that politicians can't expect to govern forever. That is also why we have a variety of term limits/election frequencies for different offices, so that a range of different horizons are reflected.

    The trouble with borrowing is not that it falls outside the political horizon of the immediate election cycle, but that it falls outside the political horizon of entire generations of politicians and electorates. If it were the kind of thing that came back to bite you in the ass right after getting re-elected, that would still be sufficient incentive for politicians to clamp down on it. But what happens is that it doesn't come back to bite anyone in the ass until the politicians and voters in question are all dead and gone.

    For now - the next generation of the leadership are all a bunch of lawyers, economists and businessmen (basically the same sort of sector that shows up in US government so heavily). Nothing about China's system of government guarantees that it will be a technocracy run by engineers, nor does anyone who's paying attention expect such to continue long.

    And the putative fact that authoritarian dictatorships might be immune from fiat money problems (seems irrelevant, actually - China's mercantilist policy has nothing to do with the particular system of government, and everything to do with demographics/development) is cold comfort when you consider that authoritarian dictatorships are inherently brittle, unstable things (especially in the context of a growing middle class). All it will take is one good economic downturn in China, and they'll be wishing they had our problems.
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    That has been true for generations, but no longer. WWII step back almost all nations badly, but they have recovered and now no longer need the US or the dollar, which they are selling. For a Eurpenean POV see:

    You and I just disagree on what the near future holds for the US. I foresee the current flight from the dollar as accelerating. 14 trillion debt now, 15.7 trillion next year and then growing as interest rates rise, to add more than 2 trillion annually. Do you really think this will not "come back to bite anyone in the ass" in a few years? I am on record for more than four years with the prediction that the dollar will collapse in a run to get out by Halloween 2014 so I expect a lot of asses will be bitten soon. Quite possibly US democracy and capitalist system will be drastically altered as the cure of the chaos, well before 2020. Read more of why, especially the part now bold, in this post:
    Part of post from here:

    BTW, a couple of years ago, to fight inflation the Argentine government passed laws prohibiting farmers from selling their food crops externally. Thought was that then food prices would drop locally, but in fact many fields were not harvested and some were even burned in protest. Russian experience with command production of agricultural products also shows how hard it is to force food production by central command.

    The great potential of the mid west for producing more food than Americans can eat, may be just that - only a potential that only a capitalistic system can develop, so even with a command economy, jobless Joe American may be hungry and rioting. I.e. I was not stating that a switch to a command economy would put food on Joe's table, but Joe may, probably will, believe that it will and to switch to more of a command economy, via his votes. He surely will not stand still, while world's largest privately owned (no stock) food company, Cargill, sells the food his kids need to China.
    Last edited by a moderator: Apr 12, 2011
  21. AndrewH Guest

    So are you saying in a democracy, choices made for the greater good are unfeasible? This is a serious deficiency if that is what you are saying!

    Also, I think power is already pretty well entrenched in Washington. Politicians use many tools (i.e. gerrymandering, money interests, etc.) to get relected. There are no term limits in the House or Senate. Excluding the recent Tea Party thing, the turnover rate has historically been VERY low.
  22. The Esotericist Getting the message to Garcia Valued Senior Member

    The short. . .
    and the long (ignore the sales pitch, otherwise, it's pretty dead on) . . .
    I'm not really convinced that martial law will necessarily be enforced by the U.S. military. I've met members of the U.S. military, mostly they're a pretty good bunch of people. Sub-contractors, foreign military and U.N. troops, I'm not so ...sure about them. We'll see what happens when people's entitlements or their tax refunds don't arrive on time. lol Why wouldn't the world invade us? Unless we submit to a world currency, we're just fun lovin' criminals. Lot's of guns stealing the oil and toys.

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    Wednesday, November 17, 2010 – by Staff Report
  23. joepistole Deacon Blues Valued Senior Member

    Given the politcal risk in the US, the risk Republicans/Tea Partiers will cause a default on US debt, I am moving out of the dollar and into foriegn currencies and I am shorting US short and medium term debt.

    At the very least, I expect Republicans/Tea Partiers to put on a very scary show. At worst, I expect they will cause the US to default on it's debt obligations. Ultimately, I think Republicans/Tea Partiers will pay a heavy price but by that time the damage will be done.

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