The World Won't Buy Unlimited U.S. Debt

Discussion in 'Economy' started by Kevin_Kennedy, Jan 24, 2009.

  1. Kevin_Kennedy
    Offline

    Kevin_Kennedy Defend Liberty

    Joined:
    Aug 27, 2008
    Messages:
    17,590
    Thanks Received:
    1,581
    Trophy Points:
    205
    Location:
    Ohio
    Ratings:
    +2,027
    Opinion: U.S. Debt's Appeal Has Limits - WSJ.com

    New article by Peter Schiff.
     
  2. Toro
    Offline

    Toro Diamond Member

    Joined:
    Sep 29, 2005
    Messages:
    50,782
    Thanks Received:
    11,059
    Trophy Points:
    2,030
    Location:
    The Big Bend via Riderville
    Ratings:
    +25,110
    This is true.

    It should be stated however that Schiff argued that when the collapse came, we would also have a currency crisis and a buyer's strike of US debt. That has not happened as US Treasury bonds have not only not been sold, they have become the dearest thing on the planet. Thus, the opposite has happened to what Schiff said, at least so far.

    The problem with this argument is that they generally do not state against what. The dollar cannot collapse against other fiat currencies because there is a natural bound by which fiat currencies must trade. The euro and the pound are in even worse shape than the dollar while the strong yen is strangling the Japanese economy.

    So if all the world's currencies depreciate, it matters not. Bonds will be traded relative to other bonds.
     
    Last edited: Jan 24, 2009
  3. gonegolfin
    Offline

    gonegolfin Member

    Joined:
    Jul 8, 2005
    Messages:
    412
    Thanks Received:
    36
    Trophy Points:
    16
    Location:
    Austin, TX
    Ratings:
    +36
    Schiff gets credit for predicting the collapse in the US markets, the housing bubble, and the economy (as several others also saw coming). But he completely miscalculated ...

    1) The effect all of this deleveraging would have on the US Dollar and other world currencies. BTW, I think that this will reverse.

    2) The effect all of this would have on foreign equity and bond markets. He was arguing for a decoupling. It did not happen. He says it is still coming. I say not for a while.

    3) The serious problems that other economies are having. Many participated in this bubble alongside the US and are hurting more than the US because they do not benefit from having the reserve currency.

    Schiff has been wrong about Great Britian (and continues to be wrong about them). I disagree with him on Europe. Australia has been hammered due to many of the same problems. Schiff has been wrong here.

    His firm was actually recommending Icelandic bonds in 2008!

    I have some Australian investments and will keep them because I think the Aussie Dollar will probably not decline from these levels. But the A$ has fallen substantially. I continue to favor the Asian currencies (Singapore Dollar, Hong Kong Dollar, Yen, Yuan) and the Swiss Franc.

    Brian
     
  4. Paulie
    Offline

    Paulie Platinum Member

    Joined:
    May 19, 2007
    Messages:
    31,577
    Thanks Received:
    4,856
    Trophy Points:
    1,130
    Ratings:
    +15,424
    Yeah I've definitely wisened up about Schiff over time, definitely with some help from Brian here. He'll always have my respect for getting on TV and at least TRYING to warn people what was coming in the housing market, as much ridicule as he constantly took along the way.

    I'm glad I didn't set up a portfolio with EuroPac, I was THIS close to doing so, too, right before foreign equities started going down the toilet.
     
  5. gonegolfin
    Offline

    gonegolfin Member

    Joined:
    Jul 8, 2005
    Messages:
    412
    Thanks Received:
    36
    Trophy Points:
    16
    Location:
    Austin, TX
    Ratings:
    +36
    Absolutely, he deserves his credit here.

    I think there will be a good time to have such a portfolio (with EuroPac or whomever). Just not now. And like I said, you need to do your research and know which foreign investments will prosper. EuroPac has not done well here in the last couple of years or so. Schiff can be summed up as 1) Everything US == bad 2) Everything Foreign == good. He paints with to broad of a brush and has failed to see the problems various foreign economies have had/are having.

    Brian
     
  6. Paulie
    Offline

    Paulie Platinum Member

    Joined:
    May 19, 2007
    Messages:
    31,577
    Thanks Received:
    4,856
    Trophy Points:
    1,130
    Ratings:
    +15,424
    It's strange too, because I would think a guy like him would have realized that the central banks were going to ultimately operate in collusion to prop the Dollar up.

    I suppose he figured maybe this time they'd finally see the light and let us fall. The fact that they haven't yet is what tells me that there's more influence over international central banks' interests than JUST those particular countries' leaders. Call me a conspiracy theorist, I guess. Something just isn't right. It's certainly not RATIONAL.
     
  7. Toro
    Offline

    Toro Diamond Member

    Joined:
    Sep 29, 2005
    Messages:
    50,782
    Thanks Received:
    11,059
    Trophy Points:
    2,030
    Location:
    The Big Bend via Riderville
    Ratings:
    +25,110
    People have been talking about the death of the dollar for some time, but I think they are dead wrong. The question is, what will replace the dollar? The euro? It may not survive and it is not bound by a united political entity. Greece, Italy and Spain have all been downgraded recently, Portugal may be next and the UK and Ireland are on the brink. Certainly not sterling as the UK was actually worse than the US in terms of a housing price bubble. The yen? Japan is in a recession and has a much worse fiscal position than any industrialized economy in the world (though most of it is owed to its own citizens) and its population is declining. Plus, the banking system is antiquated. Gold? Sorry, there is not enough of it in the world, and most of the world's central banks continue to sell gold.

    I was actively shorting US stocks and REITs in 2007 and 2008 because you could see this mess coming a mile away, though admittedly, I covered and went long too early. But anyone with an understanding of economic history and asset valuation knew that things were out of whack.

    When I started researching this in 2002, I maintained that the ultimate end game would be a simultaneous devaluation of all fiat currencies. Nothing has changed my mind. We are in a deflationary period now, but eventually, governments will effectively monetize debt. We will be swimming in credit and borrowing will be cheap. When that happens, real assets - stocks, real estate, commodities, gold - will rise.
     
    Last edited: Jan 24, 2009
  8. Toro
    Offline

    Toro Diamond Member

    Joined:
    Sep 29, 2005
    Messages:
    50,782
    Thanks Received:
    11,059
    Trophy Points:
    2,030
    Location:
    The Big Bend via Riderville
    Ratings:
    +25,110
  9. gonegolfin
    Offline

    gonegolfin Member

    Joined:
    Jul 8, 2005
    Messages:
    412
    Thanks Received:
    36
    Trophy Points:
    16
    Location:
    Austin, TX
    Ratings:
    +36
  10. Zoomie1980
    Offline

    Zoomie1980 Senior Member

    Joined:
    Jan 16, 2008
    Messages:
    1,658
    Thanks Received:
    128
    Trophy Points:
    48
    Ratings:
    +128
    I just hope we don't get into a hyper-inflationary run at the same time..... All these bottled up dollars, euros, whatevers, have to break loose some time, then we are right back to running up new asset bubbles as too many dollars will be again chasing limited investment vehicles....
     

Share This Page