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

[Kevin_Kennedy]

Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

Opinion: U.S. Debt's Appeal Has Limits - WSJ.com

New article by Peter Schiff.

 

[Toro]

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.

 

[gonegolfin]

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.

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

 

[Paulie]

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.

 

[gonegolfin]

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.

Absolutely, he deserves his credit here.

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.

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

 

[Paulie]

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.

Absolutely, he deserves his credit here.

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.

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

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.

 

[Toro]

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.

 

[Toro]

Here is an article entitled "Peter Schiff was wrong."

Mish's Global Economic Trend Analysis: Peter Schiff Was Wrong

 

[gonegolfin]

Here is an article entitled "Peter Schiff was wrong."

Mish's Global Economic Trend Analysis: Peter Schiff Was Wrong

This cat fight is going to get interesting.

Brian

 

[Zoomie1980]

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.

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....

 

[wimpy77]

what peter schiff and jim rodgers want tell you is they have a finanical investment is seeing the u.s. dollar and european currencies fail and also the two economies. both are heavily buried finanicially in the asian markets especially china.

 

[Paulie]

what peter schiff and jim rodgers want tell you is they have a finanical investment is seeing the u.s. dollar and european currencies fail and also the two economies. both are heavily buried finanicially in the asian markets especially china.

Schiff isn't exactly keeping that a secret. His entire company strategy is foreign investments, get out of the Dollar, and he's really only bullish on the Swiss Franc as far as Europe goes. That isn't exactly embedded deep within the fine print.

This is a stupid discussion. We all realize Schiff was wrong on the big picture. He gets credit for predicting the housing mess, and that's about it. Some of his foreign plays have worked, like some gold mining stocks, but most have not.

 

[editec]

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.

Absolutely, he deserves his credit here.

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.

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

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.

They cannot let the US dollar fail.

They own too many of our bonds payable in US dollars.

Their banks, much like our banks, are holding a lot of toxic debt.

No solution that is purely a monetary bandaide is going to fix the problem.

The problem will be solved when Americans and Europeans can find work.

The workers produce the real wealth, folks. Not the bankers, not the economists, not the makreteers or the financiers, the folks who are making goods or providing services are the source of our wealth.

Since the industrialized world's master class fell in love with putting slaves to work cheaply, and abandoned invesments into Europe and The USA's industrial base, those people that they were counting on to be consumers for the slave manufactured goods have RUN OUT OF MONEY to keep the system going.

The wealthy of the world are richer (relative to everyone else) than they EVER were.

That imbalance has broken the system.

Supply siderism taken to an the extreme screwed the economic pooch.

Greed, it turns out, turns out NOT to be so good, after all.

 

[Paulie]

You can't magically create jobs, Ed. A company can either afford to offer you a job, or they can't. You can always grow government and create THOSE jobs, but then you're inevitably taking jobs FROM the private sector.

I understand your point that when people are back working, things will get better. You just seem to make it sound as though government should be making that happen, when they really don't have much ability to do so. When cash and capital start moving again, companies will hire.

It's a waiting game. Can you stomach it?

 

[cunclusion]

I personally have invested in gold, silver bricks as well as Yuan, Yen and Swiss Francs....Covering most of my bases i think.

 

[editec]

You can't magically create jobs, Ed.


No shit. It takes investments to do that. Did you miss the part where I pointed out that the investments in manufacturing went to those slave economies, or something?

A company can either afford to offer you a job, or they can't. You can always grow government and create THOSE jobs, but then you're inevitably taking jobs FROM the private sector.

Here we go, back to trying to explain our world using 8th grade economics.

Let me ask you something, okay?

What is the cause of our current problems. Now don't tell me that it's ALL about real estate, because the real estate crises was a SYMPTOM of the problem.

Why are Americans BROKE, Paul?

I understand your point that when people are back working, things will get better. You just seem to make it sound as though government should be making that happen, when they really don't have much ability to do so.

All that our government can do is prime the pump, Paul, I realize that. But until the pump gets primed, the market can pump all day long and no liquidity will flow.

Why?

Because the market (as we have seen thanks to the first half of this bailout) is scared.

When cash and capital start moving again, companies will hire.

Exactly...and where will the cash and capital come from?

The markets lost trillions upon trillions of dollars...what they lost, what they really lost, was the PERCEPTION of liquidity.

Now how did that happen? WEll even though my house is EXACTLY the same as it was last month, the market percieves that it is worth LESS CASH.

Did my net worth really lose ground? Welll if you think a house is only worth what the market will pay more for it, then yes.

But it is what? EXACTLY the same house it was a few months of a year ago.

You get my point here?

Money is a representation of wealthy...it is NOT real wealth.

Nothing REALLY happened except that people percieve that they lost money.

It's a waiting game. Can you stomach it?

I have very little choice but to stomach it, Paul.

 

[Paulie]

You muddy up your posts too much, Ed. Trying to comb through all that and pick out quotes is a bit tedious. I'll just pick your question about why are Americans broke.

First of all, that's a blanket statement that is way too generalized to even lend credence to. I'm hurting right now. I haven't had work since the beginning of December. My girlfriend is in full time school now, working part time for not a lot of money. We're getting by on what we busted our asses all last year to save up, because we KNEW this bad time was coming. We didn't buy a bunch of bullshit CRAP. We saved our money, which wasn't even that much in ITSELF, but it's helping us out TREMENDOUSLY. We saved by cutting our own budget, doing without a lot of things our friends and neighbors weren't willing to do without, and now we're ahead. We'll be getting a decent tax return, and that along with our savings, should get us through to her graduation, in which case she'll be getting a good job as a nurse that pays well. A job that is prosperous in ANY time.

As far as me, I love what I do, but it isn't a viable career choice for me. So I borrowed money from Sallie Mae and enrolled in school to train myself for a new career. It's what ANYONE in this country with a fucking high school diploma can do. I'm tired of seeing all the excuses for why people are hurting. There are OPTIONS. Our family motto is "there's ALWAYS another way", and that's true about 99.99999% of the time.

Anyone with a HS diploma can get a student loan, fill out a FAFSA, and go to school to learn something that's currently in demand in today's job market. Something that's in demand even during bad economic times. I.T., healthcare, etc. There's plenty of opportunity.

And as far as the ultimate point in your question, Americans aren't broke. The ones that ARE broke, may or MAY NOT, have a good enough reason to be.

Overall, the biggest problem is wages haven't risen with inflation. Inflation is too high to begin with, and has been a problem for decades. Companies aren't going to offer raises to accomodate inflation increases, because they KNOW damn well that 5 years or so down the road, we're going to spiral into a deflationary environment like we're in NOW, and those wages are going to become too expensive to maintain, which is going to lead to job cuts.

You wouldn't give your employees a raise to account for inflation EITHER, it you knew in 5 or 10 years deflation was going to hurt your revenue, causing your payroll to become too expensive.

I'm sure you want to blame it ONLY on trade deficits, though. That's your mantra around here. I agree with you that it's a problem, but it doesn't trump our jacked up monetary policy, Ed. NOTHING is more of a problem than that. NOTHING.