Posted on 03/14/2013 9:15:38 AM PDT by Reaganite Republican
Assuming that liquidity is not drained from the system then sure... But if it is drained then that’s not accurate.
I'm sure you've heard the reports that claim consumer spending is up? What those reports don't say is consumers are spending more on gasoline because the prices are so high.
As long as they're not adding gasoline prices to the inflation numbers, everything looks just peachy, doesn't it? (It just depends on what the meaning of the word "is," is.)
My thoughts, for what it is worth.
There is an interesting dynamic that would need to play out before we see a collapse. Not just a market crash, but social collapse.
Here’s the issue:
Virtually all commodities are traded in US Dollars. This means that Foreign countries need to convert their currency to US Dollars to buy, mainly food and energy, even if those commodities are bought from another country. What that country does with those US Dollars is up to them. They can use them to buy the commodities they need or simply hold them.
The FED prints dollars and that makes the US Dollar less valuable, basically it doesn’t buy as much stuff. This is inflation. So, countries that have a currency linked to the US Dollar experience a reduction in their purchasing power, the non-US currencies see an increase in their buying power.
When and as the FED has been printing or doing QE 1, 2, and twist, it has hurt the US Dollar and has created a creeping inflation for us. At the same time it has made US Dollar denominated assets very attractive to foreign buyers. Which in turn provides support for the US Dollar. We destroy our Dollar and sell more of our stuff, including hard assets in the US.
At present, virtually all central banks around the world are trying to “De-Value” their currency in order to increase their exports. The FED is keeping pace with them in this race to the bottom. This cycle of QE * has been going on for 4 years now and could continue for quite some time. I believe it is being coordinated with all G-8 countries. I also believe they are doing this because it is the only option available while they wait for the “latest greatest next best thing” to revolutionize the current system. The next bubble.
So, keeping in mind that a weaker US Dollar tends to self correct as a natural function of our globalized markets, what would cause this function to breakdown?
First of all, I hope readers can see how a “One World” currency would be a disaster since it would remove the self-correcting function when imbalances occurred.
What would cause the US Dollar to collapse in a “non-orderly” fashion, in a way that would break these cycles we are experiencing?
Consider that the entire system is built on confidence, and with globalization, it’s a kind of cooperative confidence that keeps the balance. As a result, it seems that central banks around the world will continue to play the game as long as they can. BTW, I believe the FED has some very smart folks working there and are fully aware of this.
So, a scenario in which an unforeseen event would cause a primary country to adopt out of this game, would be the likely trigger. I can see another event similar to the “Long Term Capital” failure that happened in the late 1990s being a very strong possibility. The failure of a major Bank/Investment Company, that would break the system would more than likely come out of Japan or China. It would be worse if it came out of Japan, since their Central bank is operating on a knifes edge.
What would need to happen is for a G-7/8 country to basically say to the rest of the world “We are out, We fold” and the take their chips with a renewed sense of nationalism in an effort to restart on their own.
I can envision this nationalism coming from either Japan or Germany at present, however China can be the wild card here. China is still communist after all, and if they decide to tip the balance, they certainly could. They would, once again, have to starve their own people in the process.
And the game continues.
I posted this recently regarding velocity and money supply:
Could recent purchases of food, gold, etc. by countries, e.g., China, be because they foresee the coming inflation storm?
1. Inflation begins modestly.
2. People realize their savings are being eroded.
3. People buy PMs and take possession. Countries begin to buy/sell commodities using PMs instead of dollars.
4. PM prices go ballistic as no holder wants to sell and the secret is out, “there is far more paper PM than physical”.
5. People, corporations, and countries buy anything that will hold value. Capital goods, food, RE, metals, vehicles. At this point the economy looks great! Unemployment down, GDP up, Happy Days Are Here Again!
6. SERIOUS inflation commences as all the fiat savings is spent and velocity goes ballistic.
7. The world economy crashes as governments and borrowers default. At this point, inflation in food and fuel has impoverished the masses.
8. Severe civil unrest as the entitled and those on fixed incomes become much more poor.
9. War? Revolution(s)? Dogs and cats living together? Real Old Testament Stuff?
Just like the book, “This Time Its Different”. Debt and debasement of currencies always end the same way.
My Jedi foresight fails me at that point, but it bodes ill.
It’s awful! All that extra monetary base sitting as excess reserves at the Fed earning 0.25%.
We’re doomed!
http://www.zerohedge.com/news/2013-03-12/kyle-bass-warns-aig-world-back
Your boy is busy talking his book
An excellent analysis, Zeneta. As we are so deeply leveraged in China, the US is ensnared in this race to the bottom. China has no problem manipulating their currency down for a long time to drown us. They are used to starving their people so currency devaluation has little social effect to them.
We here have been terribly spoiled and have lost so much manufacturing due to leftist politics and union-driven job exportations, we can’t last in this mode forever. Either we destroy the over-taxed, over-regulated, extremely litigious model or our beloved USA will commit suicide. It takes a revolution.
Heh
Your scenario is quite possible. I wrote “Surviving Civil War II” about a war driven by financial collapse.
http://www.futurnamics.com/civilwar.php
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