The end of the line for an international monetary system based on the “US dollar”

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September 22, 2008

SouthAmerica: Regarding the latest US government $ 700 billion dollar bailout.

The US financial institutions will be able to pass the toxic waste at full price paid by the financial institutions? (That way passing its gambling losses to the US government and US taxpayers) Or they are going to sell the toxic waste to the US government at 30 cents on the dollar?

If the US government is going to buy all this toxic waste for less than 1/3 of the price that this garbage is being carried on the Financial institutions books – then when the US government buys this garbage the financial institutions will need to put the losses related to the sell of this toxic waste into their profit and loss statement creating a massive amount of losses for all these financial institutions.

If the US government is estimating that they will be able to buy the toxic waste for 30 cents on the dollar and they are setting aside a fund to handle the toxic waste for about $ 700 billion dollars then the conclusion that we get is that the US financial institutions will have to recognize $ 2. 3 trillion dollars in losses on their financial statements in the near future.

The $ 2.3 trillion dollars represent the other 2/3's of the investment that they are carrying on their books right now and will have to write it off.

And these financial institutions have not idea of how much losses are already on the pipeline related to the derivatives market regarding the US government nationalization of Fannie and Freddie, AIG, and the demise of Lehman Brothers. The carnage related to these unknowns are mind-boggling and anybody’s guess.

The carnage to the US financial markets has a long way to go before anyone can see the light at the end of the tunnel.

Right now the only light at the end of the tunnel is coming from a train that is coming at 300 miles per hour carrying massive losses from the real estate and the derivatives market and this train is completely out of control. And there is another train coming right behind it carrying trillions of US dollars that are being held in foreign hands but they want to cash it out.

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Quote from jprad:

SA,

When the US sneezes the rest of the world catches a cold still holds true.
If the US gets a cold this time the rest of the world will develop pneumonia.
Real Estate, fiat money, over-leverage, over-development, it all exists elsewhere.
Globalization works both ways.
More...

Actually, the trend in some of the emerging markets is to try and isolate themselves from effects from the US economy. E.g ridding themselves from debt, transforming debt from USD to local currency etc. Also by opening new trading relationships - see gas-rich Bolivia receiving $4.5 bn in Russian investments now...

This is just an emerging "trend" or pattern if you will. In practical terms it means that the world "flow" of resources is being shunted around the US, and further marginalizing the US consumption economy.
 
Southamerica,

As I asked on a previous thread, which I did not recieve a specific answer.

Based on your observations, what would you specifically do for an investment vehicle as of today? I am sincerely interested in your opinion.

What country, what company, what asset class.

Thank you.
 
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September 22, 2008

SouthAmerica: The Perfect Storm is engulfing the financial system of the United States in many ways in a downward spiral of the entire economic system.

A Brazilian newspaper had quoted information from this Think thank about immigration located in Washington D.C.

The article said that in the last year the number of illegal immigrants living in the United States had been reduced by 11 percent according to information from Center for Immigration Studies (CIS) – the number of illegal immigrants were reduced from 12.5 million a year ago to the current number of 11.3 million people – about 1.2 million illegal immigrants returned to their country or moved to a country with better prospects for the future.

This decline in the number of illegal immigrants living in the USA has a direct and a negative impact in real estate prices in many areas of the country.

The nation’s immigrant population (legal and illegal) reached a record of 37.9 million in 2007. Immigrants account for one in eight U.S. residents, the highest level in 80 years. In 1970 it was one in 21; in 1980 it was one in 16; and in 1990 it was one in 13. Illegal aliens account of an estimated 11.3 million of the total, or almost one in three foreign born residents. Since 2000, 10.3 million immigrants have arrived — the highest seven-year period of immigration in U.S. history.

Source: Center for Immigration Studies – Washington D.C.


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Asian interest in American assets was already dying, and Asians had already started moving their assets out of the United States a trend that seems to have started over the summer – and long before the complete collapse of the free market economy in the United States.

The heard has already been spooked and has started moving towards the door and very soon everybody will be able to hear the loud noise being made by the international herd when the full stampede is underway when everybody decides that it is time to dump the US dollar.

Little-noticed data released by the U.S. Treasury Department on Tuesday showed that a sharp shift in international capital movements began in July. Private investors pulled a net $92.9 billion out of the United States, after putting $46.8 billion into American securities in June.

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Quote from Gringinho:

This is just an emerging "trend" or pattern if you will. In practical terms it means that the world "flow" of resources is being shunted around the US, and further marginalizing the US consumption economy.
More...

Most of Europe will encounter much of what the US is facing right now, and most probably worse as well.

Is the world going to shunt around them too?

Japan? Australia?

Don't kid yourself, this is a world-wide problem.

If the emerging markets choose to insulate themselves from the problems that are developing, fine.

Then again, as Bear Stearns learned years after they had turned their backs on the LTCM bailout, payback's a bitch...
 
Quote from jprad:

Most of Europe will encounter much of what the US is facing right now, and most probably worse as well.
Is the world going to shunt around them too?
Japan? Australia?
Don't kid yourself, this is a world-wide problem.
If the emerging markets choose to insulate themselves from the problems that are developing, fine.
Then again, as Bear Stearns learned years after they had turned their backs on the LTCM bailout, payback's a bitch...
More...

I don't agree at all.
Luckily I speak, read and write German fluently - so I watch a lot of Deutshe Welle and read other trend-following media of Germany and Europe.

Germany is the "locomotive" of the EU Economy. They are increasingly VERY intertwined with Russia. Germany also has the strongest growth - 1.8% of the large economies of the EU. It is mutually beneficial for Germany and Russia to grow together - and we see this happening. The German business sector were VERY quick to mellow down the Georgia crisis created mainly by the madman Saakashvili - but no doubt supported by Neocons - as it coincides with their elitist strategies abroad, for the world. Russia is also sidelining US involvement in the world economy by seeking partners like Bolivia, Brazil and the Shanghai Cooperation Organization - with India and China mainly. The US is in for a wholelottabucket of hurt now that they have created distrust in their intentions and business...
 
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Kowboy: Southamerica,

As I asked on a previous thread, which I did not receive a specific answer.
Based on your observations, what would you specifically do for an investment vehicle as of today? I am sincerely interested in your opinion.
What country, what company, what asset class.
Thank you.


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September 22, 2008

SouthAmerica: I am being honest with you when I say that I don’t know what you should do next regarding your investments.

The best advice I can give you is read all the materials that you can put your hands on related to the Great Depression of the 1930’s – some people did well financially during that great depression.

We have the Perfect Storm underway we have the implosion in real estate prices moving faster than in the last depression, the entire United States system political and economic is in shambles (in my opinion, the United States is settling for second rate leaders in November 2008 when the choice is John McCain or Barack Obama) – the US government is in the process of bailing out its entire financial system and it is nationalizing a large chunk of the US economy. Don’t forget that 1/4th of the US economy already depended on the US government annual budget and the charity of foreigners who kept sending $ 500 billion of US dollars to support the US government deficit spending addiction.

The economic system of the United States is being held by artificial means by massive bailout, nationalizations, and US government intervention as never seen before.

The world has no clue what the US economy would look like without all these distortions caused by US government intervention.

The credit rating of the US government is being shredded into pieces and right now who knows what is the real credit rate of the US government when one takes in consideration all its expenses and liabilities.

I am surprised that the US dollar is not sinking like the Titanic right now and creating the biggest international financial crisis that the world ever seen.

Old habits are hard to let go but when the international community starts understanding all the implications of what is happening right now then the stampede out of the US dollar will become a reality and an experience that we will remember the rest of our lives.

There are too many things getting out of control at the same time that together will add a new dimension to this coming meltdown. When the entire international monetary system is collapsing on itself I have no idea what will be standing up after the dust settles.

The entire world knows by now that the United States economic system is standing in quicksand.

When an economic system is collapsing it is hard to estimate the value of anything including the credit rating of the United States and the value of the US dollar that will become a less important currency when the new monetary system is up and running.

They need to make the transition to the new international monetary system ASAP.

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Gringinho: Germany is the "locomotive" of the EU Economy. They are increasingly VERY intertwined with Russia. Germany also has the strongest growth - 1.8% of the large economies of the EU. It is mutually beneficial for Germany and Russia to grow together - and we see this happening.


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SouthAmerica: I am aware of that – this is why the Russians can claim many of the pieces of the Soviet Union back such as Georgia, Ukraine and so on and European countries are going to do nothing since they are so dependent on the Russians.

The Russians want just to piece together as many parts as they can of the old Soviet Union and the Europeans understand that.


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jprad: Don't kid yourself, this is a world-wide problem.

If the emerging markets choose to insulate themselves from the problems that are developing, fine.

Then again, as Bear Stearns learned years after they had turned their backs on the LTCM bailout, payback's a bitch...


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SouthAmerica: The truth is the United States has become a money pit, and it is not an option to help someone get back on its feet as on this case related to the United States - On the US case has become an option to come to the rescue of a country that made very bad decisions with no end in sight.

The United States has become a complete money pit: who wants to help the US finance its global adventures to the tune of a few trillion dollars such as in Iraq and Afghanistan.

The world has to reevaluate and decide what is the true value of the US economy after you adjust it for the real estate mess and a financial system built as a house of cards that is crashing very fast.

What is the future of the US economy it will be based on?

It will be based on Hollywood making movies? And what else?

How the world could continue operating under an international monetary system based on the US dollar when the foundation of the US economy is becoming based on nothing?

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Quote from southamerica:

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SouthAmerica: I am aware of that – this is why the Russians can claim many of the pieces of the Soviet Union back such as Georgia, Ukraine and so on and European countries are going to do nothing since they are so dependent on the Russians.

The Russians want just to piece together as many parts as they can of the old Soviet Union and the Europeans understand that.
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More...

"Real values" in the world are the commodities - then manufacturing and products come on top, then services etc.

They are all part of the world resources - and basically you can commoditize everything - even ideas, as in Intellectual Property and patents. Celebrities and the paparazzi inventing new "newsworthiness" are just an example of useless creations that are not sustainable.

Europeans are not stupid, and as a benefit - much of the news media is government based in Europe, and with democratic structures - they get less elitist-biased information than elsewhere. The Internet is transforming some of this trust onto the technical platforms.
 
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Gringinho: … "Real values" in the world are the commodities - then manufacturing and products come on top,


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September 22, 2008

SouthAmerica: Europe has a very solid manufacturing base, plus its agriculture, and so on…

I exaggerated a little to make a point – I know that the US still has some manufacturing left here in the US, and the agriculture sector also is very productive….

But I don’t think the United States has an economy to justify its currency to be the basis for the current and future international monetary system.

The United States economy is becoming an ordinary economy and relatively smaller in terms of its size in relation to the total global economy and in future years it will struggle to pay its bills. The best days for the US economy are in the past.

And when we take in consideration the candidates that we have from both major parties we know that the United States is in real trouble for years to come.

I have been saying that I am seating on a chair on the deck of the Titanic, and right now the ship is sinking so fast that the cold water has already reached the first deck and now it is just a matter of time until the entire ship sinks to the bottom of the ocean.

One hundred years ago the largest ship around sunk in no time. One hundred years later the US economy is sinking at the speed of light.

Note: On the night of 14 April 1912, during her maiden voyage, Titanic hit an iceberg, and sank two hours and forty minutes later, early on 15 April 1912. At the time of her launching in 1912, she was the largest passenger steamship in the world.


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