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The demise of the US dollar.


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#1 Lumberjack

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Posted 06 February 2003 - 02:22 AM

Most of you probably do not realize that the US is on the very brink of bankruptcy. The asset bubble that first appeared in the equity markets is still there in large part and has been compounded by unbelievable levels of new debt that has absolutely no chance of ever being repayed. The current level of personal,corporate and federal debt in the US is 33 trillion dollars, This does not include unfunded social security and pension obligations or the 100 trillion dollars of derivative exposure born by the US. Mortgage debt is currently fueling consumer spending and GDP exclusive of federal spending is decreasing. If the US government could not balance it's budget,let alone pay down its debt,during the largest equity and credit bubble in recorded human history when will it be able to do so?Considering the 500 billion dollar current account deficit and 300 billion dollar budget deficit necessary to keep the economy out of recession the fate of the dollar is sealed. The war in Iraq may be the straw that finally breaks the dollars back. The physical economy has been weak for decades and over 40% of GDP is now generated from financial services while bankruptcies and bad debt are setting new records on an almost monthly basis. While powell spoke today our federal reserve bought dollars on the currency exchange to strengthen the dollar and bolster confidence in the markets. JP morgan is now the agent of the US central bank, buying securities futures and commodities whenever the market softens too much. JPM currently books a derivatives position of 28 trillion dollars, this is 600 times the equity of the company, and has had a position of over 20 trillion for several years. No company can stay solvent while employing this much leverage in such a volatile market!

All this brings me to the point, The war in Iraq is not about "stealing" the oil. It's about keeping the oil price denominated in dollars. OPEC has been openly considering switching to euros and/or the new islamic golden dinar. Nations around the world are reducing their dollar holdings,which is the reason the dollar has fallen so dramatically in the past year, and the PTB cannot tolerate the threat to the hegemony of the dollar as the global reserve currency that a euro-denominated OPEC oil price represents.
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#2 atomant

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Posted 06 February 2003 - 02:54 AM

I understand all too well what your saying and agree with you on several levels. You forgot to mention the Chnese objective to dominate the asian markets with RMB and replace the dollar (which is well on its way to happening).

Then show everyone some Demark indicators, Elliotwave predictions and cycles... maybe they will get the picture.

I advised all of my family to buy oil futures contracts and RGLD in January of 2002 - Still a good strategy.
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#3 atomant

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Posted 06 February 2003 - 02:56 AM

Did you write this or cut and paste it ?
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#4 Lumberjack

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Posted 06 February 2003 - 02:59 AM

Atom, I wrote it, why?

I like SSRI, CDE, and vista myself.
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#5 atomant

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Posted 06 February 2003 - 03:05 AM

Was just curious

Glad to see some people still have a clue in America, obviously your not one of the living dead in the declining financial services industry in the USA

My congratulations to you !
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#6 Lumberjack

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Posted 06 February 2003 - 03:09 AM

It's really a shame that the financial industry and media has such a vested interest in convincing the world the bull is stil running. Many people are getting hurt by it.
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#7 pulse

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Posted 06 February 2003 - 03:15 AM

LJ & AM,

Im glad that there also some REAL issues going around instead of purely focusing on the War and the Shuttle explosion (no that these were any less important) but I think it is time that what LJ says is heard a little louder on Capitol hill.

It is tragic to see what is happenning in the US's financial sectors because it seems to be the same as the tech and property booms-to an extent. The financial service firms themselves are also banking on the economy roaring back to pre 2001 levels and as such making an absoute killing.

We had a similar discussion on this yesterday and related to the Dow and the HOW LOW WILL IT GO theories?

LJ, do you have any comments on the Dow and the future direction. I think it was Asutomat said yesterday it was looking at 3000. I sternly rebuked that on the case of eficient markets etc but it would be interesting to know what you think.
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#8 atomant

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Posted 06 February 2003 - 03:20 AM

How very true... it started in 3qtr 1999 and they still keep trying to cook it. Very typically though ...as you know the reverse robin hood thing has been the status quo for the rich.

As you know big government and big money are one in the same and they are just trying to screw every honest hard working american out of their 401k's , retirement savings, homes, bankrupt social security, put the burden of healthcare directly into their out of pocket, eliminate chapter 7's ...assign everyone a biometric id, put them into a new deal job according to their IQ scores and genetic code and hello solent green.

A little over the edge but ....you know what I am saying.
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#9 Lumberjack

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Posted 06 February 2003 - 03:29 AM

pulse,

It's really hard to say for sure, here we are in the fourth year of a bear market and equity valuations and debt on all levels are still higher than they were in Sept of 1929. Rather than give a target for a particular timeframe let me say that I don't think we'll see a bottom until dividend yields are in double digits. Another good indicater would be gold and dow at parity.P/E ratios in single digits are typical of bear market bottoms historically. This could happen at 1000 or 10,000 it doesn't really matter and depends entirely on bernankes printing press.
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#10 atomant

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Posted 06 February 2003 - 03:40 AM

Since the early 1980s, the United States has been the major destination for foreign goods on a global scale. With an increasing part of these imports being financed by debt creation, the international monetary system has been swamped with liquidity. A financial bubble has emerged and penetrated each corner of domestic and international financial markets.

The funding of the US economy by foreign investors enabled the U.S. to spend rather freely. The United States could act as the global borrower and as the international lender of the last resort at the same time. This way, the role of the United States as the main provider of international liquidity has been perverted and an unsustainable situation has emerged.

The net external investment position of the United States now is negative at more than two trillion US dollars. With the absence of private savings and growing government deficits, the need of external financing is growing. Whatever may be the appropriate political reasons for the US government's new geo-strategic aims, economically the consequences will be a cost push, and the risks are mounting that the U.S. will be headed for an economic and financial disaster when foreign funding of its expenditures should collapse.

The current global financial system is tilted towards favoring excessive absorption by the United States as it shows up in the current account imbalances. For some time, a structure like that is highly beneficial for the economy, which has the privilege of providing international liquidity. The country that issues the global currency gets a free lunch as long as its debt certificates serve as international means of payments. At some point, however, the system must necessarily go into reverse, when the discrepancy between the issue of debt and the productive capacity becomes too large.

Various factors are already in place and gaining force that will contribute to reverse the past pattern of international capital flows. While the U.S. is entering a phase of growing financial burden due to increased security expenditures and unilateral transfers, the provision of funds from abroad tends to diminish, making it difficult for the United States to finance its global aspirations.

Japan, which has long been the principal source of financing for the US current account, provided around 100 billion US dollars annually in order to compensate part of the record American deficits of more than 400 billion each year since 2000. In the long run, given Japan's precarious state of government finances and the advanced stage of the ageing process of its population, it seems rather unlikely that Japan will be able to continue providing funds at such a large scale for years to come.

Emerging Asia, with China as the most prominent economy in this group, has registered current account surpluses of almost 100 billion US dollars in the past years up from 20 billion US dollars in 1997. In China, domestic needs are already surging more urgently making it more likely that China must shift to higher imports for such items as oil and food.

The contribution of the European Union in terms of current account surpluses, which was more than 107 billion in 1997, is already in decline and will probably stabilize at around zero. In terms of long-term capital movement, the Euro Area provided a combined contribution to global financing by exporting capital amounting to 347 billion US dollars from 1999 to 2001 during a period when the United States absorbed a total of 1.3 trillion US dollars from abroad.

Like Japan, the major European capital exporting countries are facing an avalanche of rising social costs due to an ageing population. Furthermore, the expansion of the EU to the East will redirect trade and foreign direct investment from the United States to Eastern Europe and to other world regions

The relative strength of the US dollar in the past couple years reflected in large part the massive capital inflows that came to the United States from abroad. The United States experienced a benign circle where foreign capital for direct investment was attracted by the high growth rates when these inflows in turn contributed to create the superior rates of economic growth. Additionally, the massive external financing of US bond sales
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#11 pulse

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Posted 06 February 2003 - 03:56 AM

Am,

I think a very important issue is internal liquidity of a country also. Even though everyone thinks Japan is a basket case economy, it is still one of the largest in the world. On top of which, Japanese are notoriously long term thinkers.

Could it be that japan has changed their economic system to deal with the current outlook so that once again, they will rise above all else?

for example, on 2002, the yen, which if the economy was facing hardship would be reflected in the amount of yen being sold off to change into alternate currencies. In actual fact the Yen increased against the greenback by 17% in 2002.

When Japan was considered the ustopable economy in the 1980's, they had account surpluses of around 400US Billion, at present, these account surpluses are almost 1 US Trillion!

And perhaps the most important factor is related to debt, the savings rate. In the US, the savings rate was around 5% for the US and slightly less for the UK. Japans saving rate is 8.7%!

the US is indeed in trouble.
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#12 atomant

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Posted 06 February 2003 - 04:13 AM

I was recently in China and visited the major cities for the first time on a two week trip and you wouldn't believe the industrial/tech revolution going on over there.

Who are the foreign players....GM, Ford, Siemens, HP, Caterpillar, IG, Toyota


But the internal players dwarf the foreign ones beyond measure.....

China will be the economic powerhouse of the world unless --

US (Japan)/Great Britain(Canada/Australia) & Russia (Ukraine/Belarus/Georgia) ...come to terms and split up the monopoly board and then decide to work together .. we will be doomed.
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#13 pulse

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Posted 06 February 2003 - 04:16 AM

Money rules, and when China grows, who are they gonna use to import goods from....US or Japan? This is deffinately not a bad thing but again, I see your point and yes they must combine to have some equality.....but only when china are big enough otherwise they will do the upmost to stiffle china's growth into a super power, both economically and physically.
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#14 Gandu

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Posted 06 February 2003 - 05:07 PM

>The war in Iraq is not about "stealing" the oil. It's about keeping the oil price denominated in dollars. <

Well there is no free lunch but in the end it does come down to control. Who ever control the wells controls the market, the price and who gets it.

The US needs fear to keep the dollar strong. Other wise people are going to take the money and run.
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#15 atomant

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Posted 07 February 2003 - 08:04 PM

The Street knows that there are a lot of good reasons for the dollar to decline right now. Slow economic growth in the United States, low domestic interest rates. A climbing U.S. budget and trade deficit. A new Treasury secretary who has made it clear that he won't intervene to prop up the dollar.

And Wall Street can already see the drop-off in cash flows from overseas. In 2000, foreigners bought a record net $175 billion in U.S. stocks. Last year, that total fell to $120 billion. And this year, net overseas purchases are running at an annualized rate of less than $70 billion.
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#16 Guest_piehunt_*

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Posted 07 February 2003 - 08:22 PM

Interesting Thread people.
I'm a little surprised more people haven't contributed to it!
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#17 Gandu

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Posted 07 February 2003 - 08:29 PM

Actually JPM is now the defacto the FED's arm in intervention (there goes the so called free market) and they were buying the dollar during bush's speech to prop the dollar up. The FED has put in billions, prob over 20 billion to prop up the DOW. So even if they preach free market, they are out there buying up garbage and giving the appearance it is gold in disguise.
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#18 obmar

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Posted 07 February 2003 - 09:36 PM

The dollars are falling
the economy is bad
the leadership is bent for war
the citizens are zoombies

what else
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#19 Guest_CaptainAmerica_*

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Posted 07 February 2003 - 09:39 PM

zoombies?

And peace to you too Obmar. Talked to Allah today?
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#20 fu2

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Posted 07 February 2003 - 09:42 PM

And Wall Street can already see the drop-off in cash flows from overseas. In 2000, foreigners bought a record net $175 billion in U.S. stocks. Last year, that total fell to $120 billion. And this year, net overseas purchases are running at an annualized rate of less than $70 billion.

Yup, furthermore this are "real" money, not imaginary with some baloon value added. Obviously the US creditors are getting scared and are running out of the sinking ship. What is needed now is an economy embargo against the US imposed by the UN if the current dufus President decide to "do it alone in Iraq", and the US will stink on ice in a mater of months.
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