As you begin to appreciate the gravity of the situation Charles lays out in a most eerie fashion what the most likely scenario awaits us and builds a strong case for why he believes the dollar will collapse. At this point most readers not familiar with economics or America’s history of debt may begin to panic and pass out from fear, as Charles’ arguments are extremely convincing. From a long term perspective there is very little to argue about, our fiat pyramid of debt has to and will eventually collapse – the only question is of timing. This question is crucial to properly answer as it will spell out the direction of the next several years. While Charles attempts to answer the question with an open mind, his views can be best described as inflationist and he firmly believes that the forces in charge of our destiny will turn to the only tool available to them - currency depreciation. Once again, in the long run this may be true, but for the time being America finds itself in a unique situation where our dollar is still the reserve currency and is still trusted around the world. Certain technical reasons also suggest that the dollar may strengthen in the coming months not so much due to any internal policy, but the systemic failures in other parts of the world. Still, as Charles poignantly argues our status as the reserve currency is on borrowed time and can change with a blink of an eye. For this reason the book’s last section presents advice valuable for every American regardless of what one’s prognostication may be.
Charles is partial to value, a concept easy to grasp when you realize just how worthless the dollar can become. Therefore common sense approaches involving gold, silver and oil are presented. Charles makes a deliberate effort to provide options for any would be investor regardless of experience and if you are under the impression that you must build a ten ton safe and start hoarding gold ingots then you are mistaken, it is easier than you could ever imagine. Several sections are also devoted to address other popular investment strategies like equities and treasuries and why you should think twice before you invest in these increasingly risky asset pools. A rather amusing analogy between America’s credit strength and a shady uncle constantly looking to borrow should be reprinted and distributed all over the Internet.
The Dollar Meltdown is a unique and valuable book, offering the complexities of economics in order to explain where we are and how we got here while presenting investment strategies for those people interested in taking control of their financial feature. If you prefer eating glass over reading economic text or think Wall St. is a prerequisite before making investments, then this book is a must read for you and your family.
“Trader Mark” poses this interesting question: Is America a Ponzi scheme that works?
To quote from the article:
America is a uniquely attractive place to live: a lifestyle superpower. But it cannot afford to be complacent, for three reasons.
First, other places, such as Australia, Canada and parts of Western Europe, have started to compete for footloose talent.
Second, rising powers such as India and China are hanging on to more of their home-grown brains. There is even a sizeable reverse brain drain, as people of Indian or Chinese origin return to their homes. But neither India nor China attracts many completely foreign migrants who wish to “become” Indian or Chinese.
Third, since September 11th 2001 the American immigration process has become more security-conscious, which is to say, slower and more humiliating. Even applicants with jobs lined up can wait years for their papers. Many grow discouraged and either stay at home or try their luck somewhere less fortress-like.
The stakes are high. Immigration keeps America young, strong and growing. “The populations of Europe, Russia and Japan are declining, and those of China and India are levelling off. The United States alone among great powers will be increasing its share of world population over time,” predicts Michael Lind of the New America Foundation, a think-tank.
By 2050, there could be 500m Americans; by 2100, a billion. (I am not sure how Earth would support 500M or 1 billion Americans consider 300M use 25% of all it’s resources!) That means America could remain the pre-eminent nation for longer than many people expect.
My take on this article: The question is not whether a Ponzi scheme can work (all Ponzi schemes that get off the ground work to some degree). The essential questions are (1) can a Ponzi scheme work indefinitely (answer: no, no Ponzi scheme has ever worked indefinitely) and (2) has the U.S. Ponzi scheme just irreversibly burst (answer: yes, immigration levels are falling dramatically if you count illegals and, incredibly, net repatriations of money to Mexican relatives have in many cases reversed - poor Mexican relatives are now in many cases giving money back to newly homeless Mexican families living in the US!).
Once a Ponzi scheme bursts, you cannot ever put it back together because the suckers have dried up and are unwilling to finance the earlier entrants. The latter entrants always have to subsidise the earlier entrants. Once there are no more “latters” the whole thing blows up.
The U.S. is simply running out of “latters”. It’s over, in my view.
The new Ponzi schemes will continue in places like Cambodia, Vietnam and (perhaps) Australia and New Zealand. Until environmental and population problems mean the “latters” again have to go elsewhere.
But the U.S. in my view has just run out of suckers. The price for entry into the scheme is too high and the rewards too low. Everyone sees the Ponzi scheme is a fraud and once that’s exposed it’s all over for any Ponzi scheme. The illusion is shattered – and once the love’s lost, there ain’t no goin’ back.
MISH, noted deflationist, does a superb hit piece on the inflationists here on his blog.
Bottom line is that banks cannot use “excess” reserves to kickstart the FRB process if there are no creditworthy borrowers to lend to.
Either mass debt forgiveness will have to take place to allow lending to restart, or Bennie Boy will have to get the helicopter powered up and literally throw money out into the streets for the plebs to pay back their loans and start borrowing again. If the plebs don’t get the money to pay back their loans when the velocity of money slows down due to the high leverage levels grinding down the velocity of money to a crawl in every area other than where the banking parasites live, lending will continue to be frozen.
You cannot convince someone about to lose their job to borrow to gear up into the stockmarket or property market. You cannot convince a bank to lend to a borrower who will go bankrupt in a few short months.
The US has reached “Peak Credit.”
What is hard to understand about that?
Why some Austrians are confused on this issue is beyond me. Frank Shostak isn’t. Robert K. Landis wasn’t in 2004. Ludwig von Mises didn’t predict hyperinflation at the end of a credit-fuelled boom. He predicted “catastrophe”, not “hyperinflation”. Catastrophe in my view means “extreme price volatility in all asset classes leading to collapse of the division of labour and eventually state bankruptcy” – not hyperinflation.
So, excess reserves will subsidise the banks back to profitability, but the big banks will be islands of paper profits in sea of red-ink insolvency in the real economy.
We already know it’s going to be hyperinflation or deflationary depression.
The Makian Distribution predicts this: unprecedented public and private debt means unprecedented volatility. The one absolute certainty is that you will no longer get steady 4% returns year-by-year in any asset class. You will either double your money in a year or be wiped out completely. Government bonds will have insanely low (even negative) yields – and then suddenly be worthless within weeks.
Now, David Calderwood imagines the deflationary scenario as vividly as anyone has this year. As a deflationist, I’m visualising something very similar to happen, short of Bennie Boy dropping toilet paper fiat from helicopters – which ironically is unlikely given he speculated he’d do it if he had to. Once an academic speculates on something so stupid in an academic paper, he’s highly unlikely to follow through in reality.
The only question I have for David Calderwood is the same one I have for Steve Keen: WHEN?
According to a recently published study bankers negatively contribute to society whilst nurses and teachers and other providers of essential services have had their pay cut in real terms, so that massive distortions now exist in the remuneration structures in the UK.
Has any parasite done anything else other than destroy its host?
The solution is not a tax on bonuses. The solution is to outlaw the practices that are themselves damaging to society – namely embezzlement and counterfeiting.
I like my headline compared to Ft.com’s: “Risk appetite surges on Dubai bail-out.”
Who wouldn’t want to lend to Dubai now that Abu Dhabi has confirmed it will play market sucker? This isn’t moral hazard – this is a licence to print money out of the oil wells of the Middle East.
The solution? For Abu Dhabi to reign in Dubai’s excesses and slow down the debt-deals that are clearly killing the region. Circuses have got to stop – sustainable farming has got to replace the mad casinos.
Low IQ borrowers meet sharp London bankers. The mix is never good.
and the NSW govt is going to provide yet more funding for farmers in marginal areas that shouldn’t be farmed.
The number of problems here, compounded by govt, is truly mind-boggling.
The NSW govt – already neck high in debt – will be bailing out one group at the expense of others (me!).
Farmers on marginal land should get the Hell off the land and leave it fallow for a few years to recover and regenerate as natural reserve land. If govt bails them out, guess what – further environmental degradation will occur once the rains (briefly) come down again and they overfarm (yet again).
This is not like an earthquake. The farmers bought marginal farmland knowing it was marginal. Rainfall maps are now available to any buyer of farmland. No one can say they didn’t know drought was a risk.
This bailout creates moral hazard, with farmers buying marginal farmland knowing they will get govt bailouts if they overfarm and fall into drought.
Why are farmers trying to farm in drought-stricken areas? Because more fertile land in higher rainfall areas (Hornsby, Penrith, Dural) has been taken over (destroyed) by residential construction. Why? Because local govts and the NSW govt re-zoned the land from farmland to residential or commercial or industrial years ago. Why did they do that? Because they needed the money and residential development provides huge windfall profits. Why does re-zoning provide huge profits to developers and councils? Because banks lend huge amounts of money for houses. Why do they do that? Because fractional reserve banking creates huge distortions in the market, mispricing housing and underpricing farmland. Why do we have fractional reserve banking? Because banks and govts could not be as large and powerful as they are without embezzling FRB. Why do bankers and govts want to be large and powerful, if they know doing so results in such incredible destruction? Ask Freud.
Residential land gobbles up fertile arable farmland in the most productive areas of Australia, and farmers are marginalised, far from urban areas, in the most marginal farming lands of this great land.
This is insane.
This is govt and banking at work.
is the most difficult and insidious addiction to break, because it involves lengthening a shortened time horizon.
Once shortened, it’s impossible to go back.
Martin Hutchinson identifies bubbles in China, UK housing, Wall Street and green-tech.
I wonder what’s going to blow up next, after Dubai?
HSBC was a big lender in Dubai???
They move savings from the region with the strongest growth to lend these precious dollars to the builders of one of the most ridiculous housing/property bubbles of all time, with virtually no permanent population, with 40 degree temperatures during the day, and with other lenders pulling out?
Someone should report back to Head Office more often.
Ludwig von Mises’ Theory of Money and Credit was published in 1912.
Nearly a century on, the Swiss Bank Mafioso rediscover Austrian Business Cycle Theory.
It appears the rats left the sinking ship a little earlier than previously thought.
You’ve got to be quick to catch fleeing rats. The vaults have already been emptied, and they appear to have stolen US bonds, art, jewellery, gold and luxury houses.
The prime choices for all the world’s embezzlers.
Everyone is piling in, stating that Dubai was obviously a bubble. Where were they three years ago?
Oil revenues underpinned the Dubai economy through Abu Dhabi. So it wasn’t completely irrational for bankers to pile in, on the implicit assumption that the govt would bail out Dubai anyway. That it’s not happening doesn’t mean the bet wasn’t rational or worth making.
Similarly the madness of Australian banks relying on VOLATILE and UNSTABLE international wholesale markets (Cth Bank needs to issue $1 billion in bonds a week just to survive) is clearly a sign of a bubble in debt in Australia but no one notices.
In Australia there is such a clear mis-match between savings and investment, such a clear bubble in real estate (both residential and CRE), it’s obviously leaking out in the wholesale market. Which is why the govt had to play market sucker and buy $8 billion in RMBS that no one in the wholesale market would touch. And which is why Westpac and the Cth Bank needed implicit/explicit govt guarantees to keep issuing bonds into the wholesale debt markets.
Australian banks have become dumb retailers of debt, pushing middle class Australians over the edge of the debt cliff through unsustainable credit card and housing debt, and passing this toxic trash onto the wholesale market through the issuance of wholesale bonds (to compensate for the lack of a deposit base to fund this unsustainable build up of credit).
Once the govt guarantee goes, and another crisis hits, where will these dumb retailers get their wholesale funds? The answer is – they won’t.
APRA is already worried about this. But there is no way out of this box. Bubbles, once formed, have no easy way of deflating. They always burst in a panic; they don’t gently deflate. Interest rates have to rise – substantially – to get back to a more balanced, self-reliant banking system, funding by its own deposit base, and not vulnerable to a flight of overseas capital. But there is no easy way to get from here to there. The only way out is via a housing bust and a major recession or a major devaluation of the $A.
I don’t envy APRA or Westpac.
Then again, they deserve the dilemma they face.
Banking karma is a b*tch.
Trendy (but visionless) academics re-discover Glass-Steagall. 10 years too late.
Where were these guys in the 1990s? Why weren’t they railing against the Gramm Leech Bliley Act in 1998? Where were they even in 2006/07? Talking about other stuff, no doubt.
Murray Rothbard was screaming about this stuff even in the 1980s. But was ignored because he was 30 years ahead of his time.
Ha Ha Ha!
That’s like throwing toilet paper at a receding tide, expecting the tide to stop receding.
And it’s curious that Japan is still fighting M3 deflation if the govt is in total control of M1. Further evidence that Gary North is wrong?
I prefer to say “There is no clear, easy way out once a Ponzi scheme has been exposed and the suckers’ savings have been stolen and the criminals are protected by the government and the central banks.”
And be forewarned: Australia is the US with a 5 – 10 year time lag.
I can’t wait to see how the Oz banks are going to handle a housing bust in Oz.
If Asia sneezes, Oz will catch cold and then housing is going down.
Watching Oz banks running around trying to negotiate cramdowns whilst hiding their bad debts from APRA and trying to appear solvent – that is my dream. My dream.
Please Eternal Monetary Gods, punish the evildoers who stole the people’s gold coins out of their wallets and melted them into IMF bullion. Teach us all what real, timeless money is. By giving us the Mother of All Housing Busts.