The US dollar and the biggest default in history.

jem · May 23, 2009

I fear that SA may be right on this one. The issue I take is with his poor China comments earlier in the thread.

China pegged to the dollar. Thereby making its products artificially cheap for our consumers.

They therefore took in trillions of dollars. Dolllars which would have gone to brazillian shoe manufacturers.

When taking in these dollars China could have exchanged those dollars for other currencies or more gold. (driving our dollar down.)

But instead they tried to find places to invest those dollars without putting pressure on the dollar.

They found a way to invest dollars without causing currency effects. it was as if they just flushed their dollars down a drain. Their money helped create new products such as no income no doc exploding arm loans.

They had a choice back then - drive down the dollar or flush down the drain and keep the dollar high. They chose the drain.

You can't screw with the markets forever. This falling dollar is the consequence of the peg.

SouthAmerica · May 23, 2009

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May 23, 2009

SouthAmerica: Reply to ARealGannTrader

I understand the old type of investing by successful investors such as John Templeton, Warren Buffett, Michael Price, and even George Soros.

But I donât know a single person that has been successful and made lots of money based on his ability of trading on the stock market over the long run.

As a trader all you care is to ride the stock market up and down and make a buck here and there.

I donât have the mindset of a trader, and my mindset is of a long-term investor.

You said: âWe are in a business cycle. We will go very low this time.â

I agree with you that we are in a business cycle, but not the usual business cycle that you have in mind. We are in one of these grand supercycles also known as "Kondratiev waves"; capitalist economies have long-term (60 â 70 years) cycles of boom followed by depression. We have reached the depression area of the cycle.

I am talking about the real deal - Nikolai Kondratiev.

Do you know who Kondratiev was?

A Russian economist, Nikolai Kondratiev, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust.

The bust cycle repeated itself approximately every 60 years. If you had read Kondratiev's paper in 1926, you would have known that an economic depression was around the corner.

Kondratiev identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depressionâfalling prices, falling stock prices, falling profits, debt collapse.

As the stock market and banking system is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson, sub-prime scandal, and many others. As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies, as is the case in the US today.

Believe me - the new global economic depression is underway - and it is right on schedule.

*****

Nikolai Dmitriyevich Kondratiev, Russian (1892-1938): was a Russian economist, who was a proponent of the New Economic Policy (NEP) in the Soviet Union. He was executed at the height of Stalin's Great Purge and "rehabilitated" fifty years later.

He proposed a theory that Western capitalist economies have long-term (60 â 70 years) cycles of boom followed by depression. These business cycles are now called "Kondratiev waves", or grand supercycles.

In 1924, after publishing his first book, presenting the first tentative version of his theory of the major cycles, Kondratiev travelled to England, Germany, Canada and the United States, and visited several universities before returning to Russia.

A proponent of the Soviet New Economic Policy (NEP), Kondratiev favored the strategic option for the primacy of agriculture and the industrial production of consumer goods, over the development of heavy industry.

Kondratievâs influence on economic policy lasted until 1925, declined in 1926 and ended by 1927. Around this time, the NEP was dissolved by a political shift in the leadership of the Communist Party.

Kondratiev was removed from the directorship of the Institute of Conjuncture in 1928 and arrested in July 1930, accused of being member of an illegal and probably non-existent âPeasantsâ Labour Partyâ. As early as August 1930, Soviet Premier Joseph Stalin wrote a letter to Prime Minister Vyacheslav Molotov asking for the execution of Kondratiev.

His last letter was sent to his daughter, Elena Kondratiev, on 31 August 1938. Shortly afterwards, on 17 September during Stalin's Great Purge, he was subjected to a second trial, condemned to ten years without the right to correspond with the outside world; however, Kondratiev was executed by firing squad on the same day it was issued. Kondratiev was 46 at the time of his execution and was only rehabilitated almost fifty years later, on 16 July 1987.

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SouthAmerica · May 23, 2009

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May 23, 2009

SouthAmerica: Reply to Jem

It is nice to hear from you again.

You said: âThey therefore took in trillions of dollars. Dollars which would have gone to Brazilian shoe manufacturers.â

Yes, the Chinese destroyed the shoe industry in Brazil almost overnight â displacing over 400,000 workers in Brazil that worked on that industry, and most of the damage was done in a short period of time of about 2 years.

On his last trip to China this past week, one of the major items on the agenda of President Lula for this trip, it was to suggest to the Chinese government that Brazil and China should start immediately trading and doing business among themselves in their local currencies and eliminating the US dollar from that process.

I will not be surprised to see the US dollar trading at US$ 2 = Euro 1 - before the end of Barack Obamaâs first term as president.

I am not blaming Barack Obama in any way for the current economic mess that we have in the United States. But we already can start giving some partial credit for the major screw-ups to Ben Bernanke.

Tim Geithner is a cabinet member that I would fire ASAP, and I would replace him with Joseph Stiglitz â he probably would be the best choice for Treasury Secretary at this time.

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GCSICLRBC · May 23, 2009

Quote from southamerica:

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May 23, 2009

SouthAmerica: Reply to ARealGannTrader

I understand the old type of investing by successful investors such as John Templeton, Warren Buffett, Michael Price, and even George Soros.

But I donât know a single person that has been successful and made lots of money based on his ability of trading on the stock market over the long run.

As a trader all you care is to ride the stock market up and down and make a buck here and there.

I donât have the mindset of a trader, and my mindset is of a long-term investor.

You said: âWe are in a business cycle. We will go very low this time.â

I agree with you that we are in a business cycle, but not the usual business cycle that you have in mind. We are in one of these grand supercycles also known as "Kondratiev waves"; capitalist economies have long-term (60 â 70 years) cycles of boom followed by depression. We have reached the depression area of the cycle.

I am talking about the real deal - Nikolai Kondratiev.

Do you know who Kondratiev was?

A Russian economist, Nikolai Kondratiev, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust.

The bust cycle repeated itself approximately every 60 years. If you had read Kondratiev's paper in 1926, you would have known that an economic depression was around the corner.

Kondratiev identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depressionâfalling prices, falling stock prices, falling profits, debt collapse.

As the stock market and banking system is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson, sub-prime scandal, and many others. As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies, as is the case in the US today.

Believe me - the new global economic depression is underway - and it is right on schedule.

*****

Nikolai Dmitriyevich Kondratiev, Russian (1892-1938): was a Russian economist, who was a proponent of the New Economic Policy (NEP) in the Soviet Union. He was executed at the height of Stalin's Great Purge and "rehabilitated" fifty years later.

He proposed a theory that Western capitalist economies have long-term (60 â 70 years) cycles of boom followed by depression. These business cycles are now called "Kondratiev waves", or grand supercycles.

In 1924, after publishing his first book, presenting the first tentative version of his theory of the major cycles, Kondratiev travelled to England, Germany, Canada and the United States, and visited several universities before returning to Russia.

A proponent of the Soviet New Economic Policy (NEP), Kondratiev favored the strategic option for the primacy of agriculture and the industrial production of consumer goods, over the development of heavy industry.

Kondratievâs influence on economic policy lasted until 1925, declined in 1926 and ended by 1927. Around this time, the NEP was dissolved by a political shift in the leadership of the Communist Party.

Kondratiev was removed from the directorship of the Institute of Conjuncture in 1928 and arrested in July 1930, accused of being member of an illegal and probably non-existent âPeasantsâ Labour Partyâ. As early as August 1930, Soviet Premier Joseph Stalin wrote a letter to Prime Minister Vyacheslav Molotov asking for the execution of Kondratiev.

His last letter was sent to his daughter, Elena Kondratiev, on 31 August 1938. Shortly afterwards, on 17 September during Stalin's Great Purge, he was subjected to a second trial, condemned to ten years without the right to correspond with the outside world; however, Kondratiev was executed by firing squad on the same day it was issued. Kondratiev was 46 at the time of his execution and was only rehabilitated almost fifty years later, on 16 July 1987.

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I can appreciate your lengthy reply to the OP.

And I agree mightily that we're headed for a depression (likely). WELL....a pseudo-depression. Let's call it a deep & interminable global recession.

But that WAVE theory is HORSESHIT.

******

Everything is set faily in an open market: commodities, currencies, consumer goods, homes, cars, clothes, etc.

EXCEPT...

The price of money = INTEREST RATES.

Interest rates are set by fallible & often deceitful men.

BOOM AND BUST...
BOOM AND BUST...
BOOM AND BUST...

This is the natural cycle when IR go up; then go down; go up; then go down...

We have this global recession (depression) PRECISELY BECAUSE those at the Federal Reserve lowered rates to at leat 40-year lows, fueling a boom in housing. Derivatives tied to housing as well as the mortgages themselves have plundered the modern financial system; and the carnage continues to grow.

You said some (albeit brilliant) Russian economist says they're cycles every 60 years.

I say HORSESHIT. Booms & busts are a general tendency but this whole wave theory says nothing new.

Everyone needs their guru, huh?

GL!

SouthAmerica · May 23, 2009

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May 23, 2009

SouthAmerica: Reply to tradersboredom

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Tradersboredom: US DEBT ETC MAY BE HUGE BUT GDP IS THE LARGEST IN THE WORLD.

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SouthAmerica: US government debt is exploding and getting completely out of control.

You are talking about the Fairy Tale U.S. GDP of $ 14 trillion dollars that the US government uses as it make believe figure â or the actual and more realistic U.S. GDP of around $ 10 trillion dollars?

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Tradersboredom: US COMPANIES ARE THE LARGEST IN THE WORLD.

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SouthAmerica: Are you talking about major companies such AIG, General Motors and Citigroup â These are the symbols of American capitalism around the world; stocks that traded as penny stock in the last few months here in the US stock market.

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Tradersboredom: THESE FOREIGN INVESTORS DON'T TRUST THE INTEGRITY OF THE RUSSIAN AND CHINA FINANCIAL OR LEGAL SYSTEM..TOO CORRUPT GOV'T OFFICIALS, UNTRUSTWORTHY ETC. NO SAFETY OF ASSETS.

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SouthAmerica: But they used to trust the integrity of US financial system until recent times including the US stock market, the banking system and so on â until foreigners were taken for a ride and they lost trillions of dollars in the US dot.com bubble, the US real estate bubble, the US sub-prime swindle of people from around the world, and the meltdown in the derivatives market in the United States that destroyed peoples wealth from around the world â like a financial weapon of mass destruction.

In a Nutshell: Basically, in the last year and half the United States lost all its credibility around the world regarding the soundness of its collapsing financial and economic systems - and that is going to affect in a negative way the way people from around the world looks towards doing business in the future with the United States, and the declining value of the US dollars as a reserve currency.

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SouthAmerica · May 23, 2009

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May 23, 2009

SouthAmerica: Reply to GCSICLRBC

For some reason most Americans think that there is only one way for the price of everything to move which is up â for stocks, value of houses, and so forth.

They think that we live on a linear world, and when this linear mentality reaches the point where the real dynamic world catches up and meet this unrealistic mindset and want to adjust it to reality, then the government and the mainstream media start panicking and they donât give a chance to let things find a more realist level and make the proper corrections.

They overreact and force the Fed to cut the fed funds rate as low as possible, and they even scare the Fed into investing its resources in a massive bailout of toxic assets of failed institution. And in a way they just compound the problems even further for the future.

I am not afraid of a Great Depression, because I understand why they happen about every 70 years â they are just part of the long term business cycles, and their purpose is to adjust all the pieces of the global economy that are completely out of sink with reality.

People can place its problems under the carpet and think that the house it is clean, but that works only so far, after a certain point you have a big cumulative economic mess â thatâs when the entire house of cards comes down and you end up with a Great Depression; and the linear thinking crashes against the reality of the dynamic world.

The Great Depression develops and tries to adjust all the cumulative excesses built over a long period of time in the financial and economic systems, and other things that are completely out of balance â it is a period of major economic and financial adjustments.

I donât know why most people are so afraid of the inevitable: a New Great Depression.

*****

We are in one of these grand supercycles also known as "Kondratiev waves" when the capitalist economies which have long-term (70 years) cycles of boom and bust is followed by a great depression.

The cycles of boom and bust are the usual pattern that we see in normal business cycles.

But the difference of the regular business cycle and these grand supercycles also known as "Kondratiev waves" - I like to quote some information from one of my published books to explain what is behind and at the root of the "Kondratiev waves" as follows:

(Quoting from my book pg. 21)

"Unrealistic Expectations.

There is much evidence that human expectations tend to be linear. Most of the time, most people expect current conditions to continue for the indefinite future. It is almost an unnatural act for a man to leave home with an umbrella on a sunny day. Call it optimism, faith in the future, or just reluctance to see the party end, there is a presumption that the environment is stable. This is why cities are built on floodplains and fault lines. A similar presumption makes the gambler double his bet or the farmer plant additional crops on reclaimed land the year after a good harvest.

Whenever prosperity exists, it is natural for people to expect prosperity to continue. For this reason, much of the history of human society is a record of astonishment. Time and again, people have marginalized their affairs, rendering themselves increasingly crisis-prone.

They have gone into debt, extending claims on resources to an extreme that could be supported only if current conditions were sustained uninterrupted into the future. Time and again these hopes have been disappointed. Whenever prosperity has seemed permanent, some apparently minute change could produce astonishingly large nonlinear shifts in the organization of human society. The failure to recognize or anticipate these nonlinear transformations has been a common characteristic of almost all societies.

â¦When the dynamic and nonlinear world adjusts itself to the linear thinking used daily by governments and other institutions such as corporations, banks, insurance companies, the church, and so on, the result can be sometimes catastrophic and can translate into unemployment, inflation, monetary devaluations, market crashes, world wars, civil wars, depressions, and even chaos.

â¦Change is a fact of life, yet many people don't want to think about it because they feel threatened by it. So when change comes, it takes them by surprise. By then they can only react to it, and unless they're lucky, they suffer losses."

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jem · May 24, 2009

While many of the statements made by S.A. about the state of the US economy seem to be reasonable there seems to be a lack of blame being placed on Europe. Europe apparently created 2 to 3 times the amount of cds as the U.S.

If the world was just suffering from a mortgage problem - we and Europe may have been able to absorb it.

What we really had was a financial bubble based on the cheap money caused by the mis pricing of financial insurance. I read that the U.S. had 60 trillion in these CDS and Europe had 165 trillion.

The last 10 -20 years were a financial mirage. Many people wondered how major economies could have such valuable information and service sectors. Now we know that much of that work was artificially supported by cheap money backed by fake insurance. (the cds).

The world is going to restructure. Within a generation the big countries are going to have to get back into manufacturing. China, Brazil are going to have serious competition.

As the price of housing go down - people in the U.S. and England will be willing to work for lower wages. Manufacturing jobs will seem like better career paths. It won't be long before we start making higher dollar value added goods again. The U.S should regain the competitive advantage it has because of the resources we have withing our borders. If we find a way to be less hooked on oil. We will once again be the worlds leading economy. Luckily for us we have fertile plains for food.

Our major risk factor is an over active government. If we follow the socialist forces that are gaining power in our politics we could destroy our future.

We need to stop bailing out our banks and start channeling our resources into infrastructure.

The biggest shame on Obama is that he did not follow his infrastructure plan. Instead he has become a puppet for Pelosi - Reid and the banks. He had the right plan. He abandoned his plan.

I wonder if he is a misguided statist or just another corrupt politician on the bankers payroll.

As it seems now, I expect him to take a job with Goldman when he is done.

It does seem that the dollar could get cut to a 2-1 ration with the Euro. The problem with that prediction is that is does not discount Europe's problems. The sentiment seems correct - but perhaps the wrong instrument is named. The Euro is likely to suffer the same problems as the dollar. However, the Euro has a high risk of its member countries wanting to float their previous currencies. I would not be surprised to see a French Franc and German Mark.

Of course if the conspiracy theorists are correct we will likely see a push towards an ameurdollar.

SouthAmerica · Feb 12, 2010

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February 12, 2010

SouthAmerica: As the US dollar moves right on schedule to achieve the biggest default in world historyâ¦In the meantime the world financial markets waste time with irrelevant and immaterial events.

Maybe Greece is just the canary in the coalmine, and the United States economy and the US dollar are the main event.

Greeceâs estimated government deficit for 2010 of about $ 43 billion dollars it is just a minor drop in the bucket inside the $14.52 trillion dollar GDP of the European Union.

For all practical purposes the Greek economy is immaterial regarding the total size of the economy of the European Monetary Union: (Euroland).

Greeceâs budget deficit is projected to reach 12.7 per cent of GDP in 2010 and the government in Athens now plans to reduce it below three per cent in 2012.

Greece GDP: $339.2 billion (2009 est.)

12.7 % of US$ 340 billion = $ 43 billion deficit in Greece in 2010

*****

Basically the economies of Greece and Portugal are irrelevant in relation to the size of the economy that makes the European Monetary Union = the euro.

But on the other hand the financial mess of the economies of states such as California, New York State, New Jersey, Illinois, Michigan and so on (are Pathetic and basket cases) but they are relevant in relation to the size of the economy of the United State of America and the US dollar.

*******

Greece:

Population: 10,737,428 (July 2009 est.)

GDP: $339.2 billion (2009 est.)

European Union:

Population: 491,582,852 (July 2009 est.)

GDP: $14.52 trillion (2009 est.)

Note: The actual figures for Euroland are a bit smaller than the figures for the European Union.

*****

California:

Population: 36,961,664 (2009 est.)

GDP: $1.9 trillion (2009 est.)

Note: If California were an independent country its economy would be the 7th largest economy in the world. And California is responsible for 13 percent of the United States Gross Domestic Product (GDP)

United States:

Population: 307,212,123 (July 2009 est.)

GDP: $14.25 trillion (2009 est.) - (US Government estimated figures)

*******

In a Nutshell: The United States should be thankful that we still have so many suckers and fools around the world. Americans still are able to project the idea around the world of the US dollar as a âsafe havenâ currency, but in reality today the US dollar is as safe as traveling in the âTitanic.â

Leading the ranking of fools and suckers, here is some information about sucker # 1:

China's central bank said that its reserves of foreign currency, by far the world's largest, rose to $2.4 trillion at the end of December 2009.

Just a reminder: about 71% of Chinaâs total foreign reserves are in US Dollars or an estimated $ 1.7 trillion US dollars - in cash, bonds, and treasuries.

******

SouthAmerica: Red Flag â US dollar crisis aheadâ¦.

US National Debt as of February 2, 2010 = $ 12. 4 trillion

Estimated deficit February 2, 2010 to Sept 30, 2010 = $ 1 trillion

US National Debt as of Sept 30, 2010 = $ 13.4 trillion

Forecasted deficit for the fiscal year (2011) = $ 1.6 trillion

Estimated US National Debt as of Sept 30, 2011 = $ 15.0 trillion

**********

U.S. GDP is estimated to be around US$ 14.9 trillion by Sept 30, 2010

http://forecasts.org/gdp.htm

I am very skeptical about the above U.S. GDP figures â and for all practical purposes the real figures for the U.S. GDP for 2010 should be a more realistic figure in the range of US$ 12.5 to US$ 13 trillion.

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bearice · Feb 12, 2010

U.S. Debt Totals $133 Trillion, China Prime Beneficiary of Fed Money Printing

Even if the government could somehow pay off that debt at the rate of, say, $100 MILLION PER DAY, EVERY DAY STARTING RIGHT NOW, IT WOULD TAKE 3,663 YEARS BEFORE THE TOTAL GOVERNMENT DEBTS AND OBLIGATIONS ARE PAID OFF.

Even if Washington were to pay off $1 BILLION per day, it would still take about 366 years before theyâre paid off.

The U.S. Federal deficit at $1.6 trillion

The officially recognized national debt at $12.1 trillion

$3.5 trillion owed to foreign investors

Unfunded national obligations of $106.5 trillion

Another $9 trillion in cumulative deficits over the next 10 years

At least another trillion dollars needed for health care reform!

Grand total: $133.7 TRILLION IN DEBT!

http://www.marketoracle.co.uk/Article15977.html

S2007S · Feb 12, 2010

Quote from bearice:

U.S. Debt Totals $133 Trillion, China Prime Beneficiary of Fed Money Printing

Even if the government could somehow pay off that debt at the rate of, say, $100 MILLION PER DAY, EVERY DAY STARTING RIGHT NOW, IT WOULD TAKE 3,663 YEARS BEFORE THE TOTAL GOVERNMENT DEBTS AND OBLIGATIONS ARE PAID OFF.

Even if Washington were to pay off $1 BILLION per day, it would still take about 366 years before theyâre paid off.

The U.S. Federal deficit at $1.6 trillion

The officially recognized national debt at $12.1 trillion

$3.5 trillion owed to foreign investors

Unfunded national obligations of $106.5 trillion

Another $9 trillion in cumulative deficits over the next 10 years

At least another trillion dollars needed for health care reform!

Grand total: $133.7 TRILLION IN DEBT!

http://www.marketoracle.co.uk/Article15977.html

How this kind of debt can be continued to be ignored is beyond me......