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Is a USA Economic Collapse Due in 2005?


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#1 rasindia

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Posted 26 September 2004 - 12:30 PM

"The whole world is hostage to the misconceived economic policies of a dollar standard out of control."

When Bush became President he inherited a Federal budget in surplus. Since then he has created the largest deficits in US history, near $500 billion in 2004 and estimated to reach $600 billion in 2005. In 1971, when Nixon took the dollar off the gold standard, the Federal budget deficit was an "alarming" $23 billions.



Read:
http://globalresearc...es/ENG407A.html
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#2 Pliny

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Posted 26 September 2004 - 04:06 PM

I don't know about 2005 but I do know within the next decade.

If the US economy collapses the world economy will as well, since it is based on the US dollar. No country that holds american dollars has an interest in the dollar collapsing and there are quite a few right now. So that will hold it up for awhile I think. They will scramble to diversify a little and buy some Euros for the time being.

A collapse in 2005 is a little early but could happen if the resulting chaos is beneficial to establishing an international governmental body to "restore order".
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#3 ahmad

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Posted 26 September 2004 - 04:21 PM

It's interesting how some of you can predict the future with absolutely no precedent in the past. Is it wishful thinking or is your crystal ball flashing at midnight?

As a currency trader I can tell you that the economic collapse of the U.S. is all but impossible. Why? Because the largest economy in the world, i.e. China, is dependent upon it. The value of the dollar versus other currencies is a reflection of buy/sell trading activity related to a particular country's trade surplus or debt.

Oil and gas are currently denominated in dollars and dollars are denominated in oil and gas. Think about that (it takes a little brain glucose to figure it out).

When Hussein decided to sell Iraqi oil in Euros instead of dollars, it cost the country a huge sum of money just to stabilize the exchange rate.

So what's your rationale for this impending "collapse"?
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#4 ahmad

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Posted 26 September 2004 - 04:25 PM

And I would add from a statement in that article:

"These huge deficits are financed by the US Treasury selling government bonds or similar paper to investors. "

that nearly 60% of U.S. bonds are sold to foreign investors who have no interest in tanking the U.S. economy. Investment capital is pouring into the U.S., particularly from countries who have a huge trade surplus - again China is a prime example. These investors manage their own currency relative to the dollar such that their foreign investment in the U.S. take precedence over their internal investment, assuring that the U.S. economy remains reasonably stable.

The person who wrote that article knows nothing of how currency really works - and more importantly, why it works.
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#5 Muntezuma

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Posted 26 September 2004 - 04:58 PM

If things continue to go the way they are going now in Iraq, a collapse is all but certain and sooner rather than later. Time to buy gold!
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#6 Pliny

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Posted 26 September 2004 - 08:12 PM

Originally posted by ahmad
And I would add from a statement in that article:

"These huge deficits are financed by the US Treasury selling government bonds or similar paper to investors. "

that nearly 60% of U.S. bonds are sold to foreign investors who have no interest in tanking the U.S. economy. Investment capital is pouring into the U.S., particularly from countries who have a huge trade surplus - again China is a prime example. These investors manage their own currency relative to the dollar such that their foreign investment in the U.S. take precedence over their internal investment, assuring that the U.S. economy remains reasonably stable.

The person who wrote that article knows nothing of how currency really works - and more importantly, why it works.



I know you didn't particularly address my post but didn't I mention there would be no interest in tanking the USD by countries that hold large reserves of it.

That there is no interest in doing that does not make it an impossibility.

As you are a currency trader I understand your point of view. No one likes to think in terms of their livelihood being threatened.

The rosiest picture of the economy was painted just before the 29 stock market crash. Most economists then didn't see it coming either. What sort of strength does today's fiat currency have over the gold-backed currency of the 29 crash?

As I said, no country wants a crash so the blinders are on. Today's currencies make it easier to create one. What would be the gain in that? Can you imagine all the people looking to a global government for a solution to a global crisis?
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#7 ahmad

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Posted 26 September 2004 - 09:18 PM

Pliny, currency traders care not which way the market blows as long as they are on the right side with their trades. So technically a trader's "livelihood" is not at risk.

That said, the larger picture is that the status of economies can be viewed on how well they manage (or not manage) their currency. In the case of Mexico in the '80s, the currency completely failed and the country had to be bailed out. Why did it fail? Because the country had no economic base with which to generate trade with other countries. Therefore, when inflation peaked and interest rates were not sustainable, the value of the currency went to virtually zero. It was a hot air balloon waiting to burst (probably will again too).

The U.S., by contrast, can be considered a huge, functional machine, generating jobs, dollars and investment opportunities both at home and abroad. The weakness of the dollar is intentional on the part of the Government and is reflected in the huge trade deficit which the U.S. currently has. It's a risky strategy, but as they say - no risk, no reward. The fly in the ointment is the reduction of American manufacturing domestically in favor of overseas production - the "outsourcing" dilemna. Some pundits have warned, and I tend to agree with them, that reducing the American manufacturing base much beyond where it is now is a serious mistake. Economies are built on the manufacturing sector - it's the engine of economic wealth. Research and development are only worthwhile when the products created can be manufactured and sold, producing jobs and national wealth.

Of course, there is always the possibility of catastrophic failure - there's always the great unknown of events i.e. wars, terrorism, etc. But markets are traded on statistical compilations of known facts whereas the futures market (akin to casinos) relies heavily on "what might happen" scenarios.

The 1929 analogy really doesn't hold because the entire financial infrastructure of the country was very different. For all practical purposes, America was a "different" country then.

Understanding the American Federal Reserve system and its policies is helpful in drawing some conclusions, even if it's only for the immediate future. The "Fed" so far has done a good job of balancing the economy against internal and external pressures. But again, the machine upon which the country is built, i.e. manufacturing, has the potential to cause instability.

As to all countries "getting together" in some global government lovefest, I think the reality is that it won't happen. The G7 group is as close as it will get to a coalition. Every country has their own self interest at stake and has very little interest to give up an inch of position in favor of the other guy.

It's a good topic with many avenues of thought and analysis. The American Government, for all its complexities, is still the powerhouse of the planet and will probably remain so for a very long time to come.
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#8 Pliny

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Posted 26 September 2004 - 11:50 PM

[QUOTE]Originally posted by ahmad
QUOTE]

As to all countries "getting together" in some global government lovefest, I think the reality is that it won't happen. The G7 group is as close as it will get to a coalition. Every country has their own self interest at stake and has very little interest to give up an inch of position in favor of the other guy.

There will be no global government lovefest. What will occur will occur out of design and the creation of necessity followed by demand.

How many currencies will the Euro replace?
Is your trading foundation being eroded somewhat by this?

Every country "used to" have very little interest in giving up an inch in position. Nationalism is fast disappearing.

It's a good topic with many avenues of thought and analysis. The American Government, for all its complexities, is still the powerhouse of the planet and will probably remain so for a very long time to come.

That is reassuring but I give it a decade on the outside unless it can somehow revive itself.
It is a good topic.

But markets are traded on statistical compilations of known facts whereas the futures market (akin to casinos) relies heavily on "what might happen" scenarios.

I do believe the statistical compilations are there to minimize risk on money markets and more factors are considered. Futures markets are just bigger risks - not that there should be no risk taking, there has to be.

I realize you are the expert in the field but I believe we are at a crucial point in the history of the world and it might be prudent at this time to weigh "what might happen" scenarios in the short term.

That said, the larger picture is that the status of economies can be viewed on how well they manage (or not manage) their currency. In the case of Mexico in the '80s, the currency completely failed and the country had to be bailed out. Why did it fail? Because the country had no economic base with which to generate trade with other countries. Therefore, when inflation peaked and interest rates were not sustainable, the value of the currency went to virtually zero. It was a hot air balloon waiting to burst (probably will again too).

Out of curiosity.
Mexico had no economic base to generate trade?
If I remember, the eighties were when Mexico nationalized it's oil production and created Pemex. Its oil production potential was not insignificant and perhaps could have provided that economic base. Thus, it is my belief the currency failed for other reasons.
I would like to hear your comments on this.

I can't agree that the Fed is doing a good job. It is doing a job it shouldn't be doing and the apparency is it is avoiding crisis. They, along with their cohorts the international banking cartel, create the crisis which has been around a long time, and then pretend to manage it. I would say "manipulate" rather than manage. They enjoy having things on edge and ready to fail on a moments notice. Don't want a government to get too uppity now.
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#9 Auld Nick

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Posted 27 September 2004 - 12:11 AM

>>Most economists then didn't see it coming either.

Excuse my plunging into this: I am economically illiterate, and acknowledge it cheerfully. But I am wondering if the Gods of the Copybook Headings are not just about to stage a revival . The 1929 crash was started by a massive loss of confidence in the economist's empirical asumption that it didn't matter if paper savings were not underpinned by tangible and valuable assets. If something nasty happens to the Western economies, there is what seems to me to be a parallel. The US has for years been printing dollars to buy oil. A good part of this deficit is held by Chinese banks. They are not holding it with any intention of losing on the deal, and sooner or later, gently or not, they will want to call on those apparent assets.

The bailiffs will call, not with any intention of wrecking the US, but with the urgent intention of building their own,much poorer, society into something better.

The knock on the door will occur a little after the oil peak, which is imminent. The comfortable assumptions of the economists that they have the mechanism under control (assumptions which are the sole indication to the outside world that the situation IS under control) will be severely tested. And the US economy is not inspiring confidence under its current management.
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#10 Pliny

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Posted 27 September 2004 - 12:23 AM

I agree. The US is being set up for a fall. The Americans have taken the bait and we'll see if the big fish is ready to be reeled in or if there is enough strength to counter.
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#11 coconut01

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Posted 27 September 2004 - 01:30 AM

I think that you need to read a little about business theory.

1. The business cycle runs regardless of cataclysm
A. Cataclysm drives demand
B. Demand seeks surplus.
C. Surplus creates wealth.

2. The one that does the least work will get the most credit.
A. The boss is always right.
B. When you drop change the pennies will fall near-by while the other coins roll out of sight.
C. No good mangier proves himself wrong

So, therefore if the cycle was going to crash in 2005 it should have already started. Stocks are a lagging indicator and they are up 80 percent. The future price of oil will only stay up until it crosses the cost efficiency line at that point chicken manure is going to start up. (propane)
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#12 ganapati

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Posted 27 September 2004 - 02:37 PM

Originally posted by Pliny
If the US economy collapses the world economy will as well, since it is based on the US dollar.

A world economic collapse will be a temporary set back, that the world can recover from.

Countries that are dependent solely on the nature of the reserve currency will probably never recover. If the US$ is replaced by another national/regional currency as the reserve currency, the economies with easy access to credit in the new reserve currency stand to benefit.

Economies that are not dependent on any particular currency being the reserve currency will rebound, because they are viable economies and not parasites feeding on the rest of the world's productivity and resources.

No country that holds american dollars has an interest in the dollar collapsing and there are quite a few right now.

Also no country that is still productive has any interest in backing the US$ either! Every day of accumulating more of the currency of a country that really has very little to export is compounding the problem and just postponing the inevitable.

A collapse in 2005 is a little early but could happen if the resulting chaos is beneficial to establishing an international governmental body to "restore order".


The sooner the inevitable switch from US$, the better for the economies dependent on it. If it is delayed any further and another currency they don't control replaces the US$, they are all doomed together. Since there is no other currency than Euro, that is being even remotely considered by anyone to replace the US$ today, a quick switch to Euro is the only option left with the West to avert a total Western economic collapse. If they wait too long, Chinese Yuan, or a common Asian trading currency, if one comes into being, could become a strong contender for the position of reserve currency and it will be curtains for the entire West. That is the only reason for 2005, otherwise it can easily take another 5-6 years.
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#13 ganapati

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Posted 27 September 2004 - 03:13 PM

Originally posted by ahmad
It's interesting how some of you can predict the future with absolutely no precedent in the past. Is it wishful thinking or is your crystal ball flashing at midnight?

Is every event in history a repition of something happened before in an exact and predictable manner? Or is that your wishful thinking?

As a currency trader I can tell you that the economic collapse of the U.S. is all but impossible. Why? Because the largest economy in the world, i.e. China, is dependent upon it.

Is that really so? China exports to US only because they currently believe the export earning are worth something in the world market. China could easily export to other countries which are productive or have some things they could buy from.

You make it sound as if US consumption, which is exactly what US economy is all about, is somehow essential for the rest of the live!

The value of the dollar versus other currencies is a reflection of buy/sell trading activity related to a particular country's trade surplus or debt.

That could easily happen with another currency replacing the US$ as the bench mark currency too!

Oil and gas are currently denominated in dollars and dollars are denominated in oil and gas. Think about that (it takes a little brain glucose to figure it out).

Yes, that is the only thing that is holding the US$ hegemony and that could change. If you read the article carefully it also mentions

From the artcile in the link
Yet China and Japan, fearing the dollar crisis, have recently begun heavy buying of commodities, from oil to iron ore to copper to gold. They are using their trade dollars to buy real commodities, instead of US Treasury debt, which is mere paper. Chinese panic buying of oil for stockpiling reserves is a major factor pushing oil prices again to record levels of $42 barrels despite two major OPEC quota rises. Steel prices have exploded due to China demand.

What this means is China doesn't trust the longterm buying potential of the US$ and resorting to extracting committments buying things of real value for dollars.

If King Saud government falls and the replacement decides to sell oil for something other than US$, that will be good enough to bury the US$! If China enters into barter with other countries (Chavez of Venezuela is doing it) that it trades with, that too can bury the US$. So too can Russia, by deciding to sell its crude for something other than US$.

The person who wrote that article knows nothing of how currency really works - and more importantly, why it works.

And you do!

Currency is an instrument of faith. And the US$ doesn't inspire faith anymore! It doesn't matter what US is capable of consuming, what matters is what it is capable of exporting which is not much. That scenario is irreversible. US$ is no longer useless for anyone other than Americans, just as it should be!
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#14 Pliny

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Posted 27 September 2004 - 03:37 PM

Some good observations and analysis on Ahmads post..

Originally posted by Ganapati: If they wait too long, Chinese Yuan, or a common Asian trading currency, if one comes into being, could become a strong contender for the position of reserve currency and it will be curtains for the entire West.



I doubt the west will allow that to occur. It is the west that is pushing the agenda of one world government through the UN, the World Bank and such, and if you could demonstrate that it would be in their interests to have a common Asian trading currency that could be the reserve currency I could be convinced it is a possible scenario.

There is a lot of nervousness in the world today, I think, and I do not believe it is totally due to terrorism. There is economic instability and the unpredictable actions of some governments.

Currency is an instrument of faith and confidence and I believe you are correct, that faith and confidence in the US is being lost.
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#15 Eric

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Posted 27 September 2004 - 03:54 PM

Oh mah Gaaawd the USA is doomed again!!!

It amazes me you guys keep this end of the USA mantra going day after day. You just want it to happen but you can't will it to happen. It's childish and uninformed. But what in that is new in Pravda?
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#16 Shilka

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Posted 27 September 2004 - 04:50 PM

I'm no economist and not a particularly bright spark to begin with, but in layman's terms, I believe the US (and the whole world's for that matter) economies are likely to face future hardship.

If articles and predictions are true about the remaining amounts of fossil fuels (mainly oil) then it is only a matter of time.

We're caught in a cycle where we have to keep on advancing, add more jobs, consume more products etc. The minute one tries to cut back, it would be at the expense of the economy and jobs.

To fuel this insatiable demand from the consumer economies, more and more raw materials are required to sustain it.

Once oil production levels start falling (and world demand is rising at a staggering rate) it will trigger immediate shortages for which there is no solution. Economies literally run on oil. Oil to produce food, oil for transport, oil for power, oil for plastics.

It won't only be the US that will go down. It would be pretty much everyone with a developed economy.
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#17 ganapati

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Posted 27 September 2004 - 06:25 PM

Originally posted by Pliny
I doubt the west will allow that to occur. It is the west that is pushing the agenda of one world government through the UN, the World Bank and such, and if you could demonstrate that it would be in their interests to have a common Asian trading currency that could be the reserve currency I could be convinced it is a possible scenario.

You are right about the part that the West won't like it a bit, but will find difficult to disallow. Time is the only thing they have on their side.

Dr. Mahathir Mohammed, the former Prime Minister of Malaysia was the one who proposed this idea of a common Asian trading currency, backed by gold and silver, the balance of trade to be settled periodically in these metals. The volume of currency doesn't have to be completely backed by the metals, only the trade gap. There will not be any paper currency, only electronic currency in which to denominate the prices for export and import. There is absolutely nothing to beat such a system. If China agrees to conduct its intra-Asia trade in that currency, there is very little the West can do about it, unless they completely control all of Middle East and oil.

The only thing the West can do at this moment is to preempt such a move by a switch to Euro, with some guarrantees to China to make up for its losses. And that is what I am betting on!
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#18 ganapati

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Posted 27 September 2004 - 06:26 PM

Originally posted by Eric
Oh mah Gaaawd the USA is doomed again!!!

It amazes me you guys keep this end of the USA mantra going day after day. You just want it to happen but you can't will it to happen. It's childish and uninformed. But what in that is new in Pravda?


That's the spirit! Many are counting on it :)
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#19 Eric

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Posted 27 September 2004 - 08:15 PM

Only the morons of which there are many here.
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#20 coconut01

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Posted 27 September 2004 - 08:29 PM

Originally posted by ganapati
... no country that is still productive has any interest in backing the US$ either! Every day of accumulating more of the currency of a country that really has very little to export is compounding the problem and just postponing the inevitable...




Hello..

It is a historical fact that the US$ is based on land, and not publicly held land, privately held land it always has been. The economy is defined by Gross Domestic Output. The tax system that supports the government is based on income, but many of the systems are supported by user fees. Like the highway system is based on fuel volume, as fuel use goes up more revenue is produced more roads are built land values go up the US$ goes up.

The business cycle is and has always been based on agriculture. That is why the global recessions occur at the time of the solar maximum. It is because when the sun expands it doesn-t rain as much and crop failures increase.

The efficiency of road construction is in the reduction of crop loss to market.
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