November 9, 2008
Peter Schiff thinks that under Obama the US dollar is due for an epic disaster, and a "major, major crisis" is now at hand.
After looking at those debt numbers yesterday, and also the projected deficit and GDP data, yes, it does appear that the US dollar may soon totally and completely implode.
I doesn't look like we'll be able to borrow our way out of this mess. At one point, China might say "no more". Printing press anyone?
Trillions and trillions and trillions of 'em. Bernanke told us that's what he'd do in this type of scenario. So that's what he'll do.
We won't default on our debt but we'll sure water it down. Deflation will rage, but inflation at the printing press will try to even it out in the wash.
The dollar, as the world's reserve currency, has had an amazing rally since the crash, as people around the world rushed to liquidity and dollars, creating in some ways a dollar bubble. And as the dollar skyrocketed, gold tumbled. Commodities tumbled. Oil tumbled. And Schiff and his supporters got killed (short term). Let's admit that. It happened.
At the same time, central banks around the world are dropping their interest rates to 0% as fast as they can, taking their currencies down with them, and they still have plenty of room to cut. So this dollar bubble builds.
But, after the liquidation dust settles, and you want to protect yourself and your savings (assuming you're holding dollars), what's the "GET OUT!!" sign? A failed t-bill auction? Bernanke hitting 0%? Oil at $80?
I think Schiff will be right on commodities, oil, gold and the dollar. Eventually. After being very very wrong today. It's just a question of when. Not if.
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33 comments:
I tend to trust Mr. Schiff. I even have some money with his firm.
However, I have a couple questions:
Are we going to see a dollar collapse or a complete fiat currency collapse. If everyone is in debt and everyone is increasing their money supply, who wins? Gold miners?
If Japan's debt-to-GDP is so high, why is their currency heralded to be so safe, even by Mr. Schiff?
The Chinese will gradually reduce their dollar position, but will do so slowly and systematically. My Chinese friend has convinced me that the short-term pain of killing the US suddenly for certain factory towns in China is not worth becoming the world's superpower overnight, when it is going to happen anyway.
I think the dollar will keep running for a bit as the UK and Eurozone drop rates close to 0%. They're at 3% now.
Eventually, it may be gold. Not now. Eventually.
This battle between deflation and inflation is one for the ages. Deflation is winning today. But Bernanke has all the firepower in the world. He could devalue the dollar 50% tomorrow if he wanted to. I'm just hoping I have time to get out (of dollars) when the time comes.
Also, anyone in ^HUI?
http://finance.yahoo.com/q/bc?t=1y&s=GLD&l=on&z=m&q=l&c=^hui
Jim Rogers was on the other day and recommended TBT - it's the ultrashort US treasury ETF
I've got my eye on it. It's not doing much right now as the rush to safety continues, but eventually, you just gotta believe the US is gonna have to pay a higher interest rate to borrow, especially since governments around the world are going to be releasing new paper at essentially the same time to pay for all these bailouts and new programmes.
I'll own it soon.
When the hell did the Federal Reserve become a government entity?
Schiff really needs to do his homework sometimes.
The liars told us the economy produced 14 trillion per annum.
It's probably closer to 10 trillion.
That's a mighty correction and it means a reversal of our consumption based way of life.
Obama can man-up and tell the truth, or he can "short" America by continuing to treat us like the degenerate slobs we are.
Given his pragmatic nature, he will do the later. After all, look at how Carter was reviled, even though he was right on pretty much everything.
Obama doesn't want to go there.
Do you think he voted for your hero?
That's the right format for Schiff - bringing him on Fox so the knuckle-heads can throw rocks at him is futile and demeaning.
I get a lot of laughs at work when I quote Jim Rogers' prediction: 'inflationary holocaust'. They don't realize how un-funny it is going to be.
The fact that we're thinking about it now means it's probably way early. I got burned owning SLV for about a month. I'm going to wait a little longer.
Thanks for the tip on TBT and ^HUI - I have been trying to come up with ways to capitalize on inflation. Rogers recommends agriculture and there are some etfs out there for that purpose. DAG is a double long agriculture etf that I may buy but haven't yet.
Consider this made for TV drama. the Republicans, Hedge Funds, Wall Street independently (no collusion of course) all take their respective actions the few days before the election to prop up the markets so that the economy looks better to all the lemmings. In turn, maybe that will give McCain a chance. No that hard to do with low trading volume. To prop up the effect, the talking heads on CNBC all politic how awful Obama will be to the markets ie Mr Schiff. Mr Schiff has to feather his bed like every other person on Wall St.
Call me paranoid, but I think the financial community is trully afraid of the Obama administration. However, they are afraid for their own personal situations not the welfare of the USA. The fat cats can take their paultry residual millions and move to any country they want and live well.
The collapse of the economy will happen whether Obama won or not.
I think the securitization and underwriting will continue to be restrained by the lack of trust by the end of the line holders of the instruments. Early TARP experience shows a very pitifull outflow of principle from teh US Banks. US Banks can't seem to sell off the mortgages, credit, etc, despite the Treasury capital infusions. And if they can't offload new credit, they are not foolish enough to collect less-than-perfect credit for their own portfolios. So they won't make loans like crazy which Paulson wanted.
Bernanke can go to zero percent, but that won't change the lack of trust.
No administration can fix this in the short run. It will take return to a real wealth creation economy based on goods and services, not creating phantom wealth.
Keith, of course it will be gold eventually. Just like it will be stocks eventually, and real estate.
Every dog has its day. Markets move in cycles.
A few short months ago you were able to say you were right about gold. Tripling, almost quadrupling in 10 years was good. Now the cycle moves down. People made their money in gold already, the smart ones anyway.
Listen, this entire argument that the dollar will collapse is silly. If the dollar and America goes down, then the entire world goes down. If America catches a cold, then the rest of the world will catch the flu. We are the United States of America. We are too big to fail.
I think the situation is more complicated than Schiff thinks.
Remember, in a "fiat currency"/fractional reserve regime (how those goldbugs love to type that talisman), you have money creation whenever net new loans are created, everybody knows this.
But they forget the reverse side of the equation: when more loans are paid off/recalled than being made (definitely true now), and when there are outright defaults (definitely true now), that money is also destroyed!
Banks reducing margin loans for hedge funds? Money being destroyed. Requiring higher payments on credit cards? Money being destroyed. Lehman going under? Money destroyed.
The Fed "printing" as in massive loaning---is usually not like printing physical currency which has an theoretically infinite lifetime. The hyperventilating people are still in their primitive gold-coin & no fractional reserve 15th century mindset.
Look for Federal Reserve *Permanent* Open Market activities---those are monetization and are, ceterus paribus, inflationary. Those can be described as "printing". But that isn't really what the Fed has been doing.
If it sucks up the losses on its crap that it bought, then yes that is printing---but to the degree that the losses would have otherwise destroyed money.
Japan had a massive "quantitative easing" policy and zero interest rates for a long time. Their currency should be plummeting by this simplistic argument, but it isn't.
Remember that in the modern world, currency moves (amateurs say "forex", pros say "currency") are determined very heavily by investment flows.
The USD will at some point decline, but this will probably be due to it becoming like the Yen under zero interest rates---a "carry trade" funding currency.
When risk aversion starts up again (i.e. "panic") they will sell the risk assets and buy back the funding currency. They don't have a choice. This is what is happening now.
It seems that eventually all currencies will depreciate against scarce physical assets in demand.
Commodities---except oil---require major economic growth. E.g. copper is heavily used in new construction.
But oil is necessary for survival and unlike mines, capacity expansion isn't going to happen over declines.
I think the only certainty is that in 10 years, oil will be higher. Currencies? Who knows.
When the hell did the Federal Reserve become a government entity?
Schiff really needs to do his homework sometimes.
Tinfoil. The Federal Reserve became a government entity when it was created by an act of Congress, and when the central management (The Fed Board Of Governors) is appointed by the President, and when all profits from the operation of the Fed flow to the U.S. Treasury.
Don't be fooled by technicalities, what matters is substance.
Note: Fed Board of Governors web site is a .gov, the individual Federal Reserve Banks are .org.
(The biggest problem is that the U.S. Treasury has become, in substance, a division of Goldman Sachs)
It is more governmental than Fannie Mae, and less governmental than the FBI, in the sense that not all employees are legally civil service. But the same is true at, say, Los Alamos National Labs, where most workers were employees of the University of California.
Did the U.C. have fundamental policy control over LANL? No, the US DOE and Congress do.
Drchaos, do you have a blog?
I like the way you think and write.
A (learned) voice of reason.
G
It will be more like Iceland.
Click HERE to see whats happening in Iceland.
You know, SA'ers is actually very appropriate for your new names.
Sycophantic Amateurs
Gawd I crack myself up......
I'm a Schiff client that has gotten killed (account down over 75% since April). Am angry at his timing, but still believe that gold, commodities will go much higher.
Just read that the Chinese government has announced a $586 billion economic stimulus plan and a more "easy monetary policy. Much of the stimulus will be spent on low-cost housing, rural infrastructure, as well as airports, roads & railways. Surely this should be bullish for base & precious metals?
The Chinese will gradually reduce their dollar position, but will do so slowly and systematically. My Chinese friend has convinced me that the short-term pain of killing the US suddenly for certain factory towns in China is not worth becoming the world's superpower overnight, when it is going to happen anyway
The last Chinese trade fair (the largest) was a ghost town. Tell your Chinese buddy their factories are done. The Chinese paper tiger will not be the next super power, they will be burnt ash. They could always invent the magic popcicle that all nations want and export it. Hey wait, they don't invent things there they steal the designs from America. I am also wondering who will have the money to buy these magic popcicles. No, the paper tiger died with globalism. Within 1 year all the greedy not to intellegent globalists will have realized this about the same time they realize no ones going to put any coin in that tin cup their holding out.
in relation to housing and the prices some are still trying to get my dollars went thru an epic devaluation already and it was helped by the bogus calculations and rule changes put up by government and there is no change posible
All hail Mr. Schiff
"When the hell did the Federal Reserve become a government entity?
Schiff really needs to do his homework sometimes."
Officially it's non-government. But who the hell knows what to make of that beast. It's one of those psudo-government monsters. It's like Freddie and Fannie, except much more powerful and much more dangerous.
The Fed must be dissolved.
Hoax or reality? if it's true we are in trouble.........
http://tinyurl.com/4c2kvx
People are sheep. Lean against the trend. You will be further ahead a few years down the line.
Kenduffelsniffenspotzen
Hoax or reality?
The Amero is a publicly-available fantasy coin. Want one? Order it here: http://www.designscomputed.com/
The video in the link is from a white supremist. Don't waste your time on this garbase.
"I think the situation is more complicated than Schiff thinks.
"Remember, in a "fiat currency"/fractional reserve regime (how those goldbugs love to type that talisman)...
(The biggest problem is that the U.S. Treasury has become, in substance, a division of Goldman Sachs)"
Wow...not a bad analysis. Expand and publish it...
I really like Peter Schiff...he was so right about almost everything. Unfortunately, at least from an outside looking in perspective, he was wrong about managing his clients money.
Call me paranoid, but I think the financial community is trully afraid of the Obama administration.
Why would the financial community be afraid of an Obama adminstration? They've already bought and paid for it.
Peter Schiff is right-on, and the other two dim-wits should stop talking, (especially that annoying rapid fire speech from the woman), and really listen to what he's saying.
Clearly, out of the two candidates, Obama represents a brighter vision and change from an administration which has been openly robbing this country for the past 8-years, but spending more money on a broke system won't fix things - I hope Obama is bright enough to realize this, but I fear he'll also play right back into the pockets to those who want to keep the status-que as it is.
Talk is cheap - we'll have to see.
While I have joked about our Chinese overlords, in the end I think that China is doomed to failure. China has too much to overcome. The population pressures, the pollution, the lack of safe outlets for societial anger and dissatisfaction, the poor sanition and spotty medical resources, the scarcity of natural resources, the internal ethnic issues, the huge overwhelming mass of uneducated and superstitious peasants, and the uncertainty of succession in its totalitarian system are a few reasons. Most, if not all of these issues will surface. The fact that China is surrounded by large and/or advanced competitor nations of India, Russia, and Japan(which quite easily turn into enemy nations)makes things even more difficult. If China starts to show weakness and instability, these nations will move in to take advantage.
Bring the factories and the jobs back home!
Why would the financial community be afraid of an Obama adminstration? They've already bought and paid for it.
No that was Oprah ;)she's the kingmaker.
I thought cash was king keith?
Peter is and has been spot on.
You should google peak oil keith...
Really - oil is NOT a renewable resource keith...it is not.
schiff has been waiting for a dollar crash. he has been invested for a dollar crash, so he keeps waiting for a dollar crash.
Problem is, a lot of other currencies are are crashing more, so the dollar, relative to those other currencies, is going up.
china is in for a world full of hurt. there is very little for 90% of their work force to do if they aren't making plastic crp and lead filled toys for the USA.
Will Central Bank of Iceland be forced to reverse course and raise rate again. If so what will happen to Yen Carry Trade.
http://www.bloomberg.com/apps/
news?pid=20601085&sid=aW_oCEk_
J3yA&refer=europe
Iceland Expects Deeper Recession, Higher Inflation
``These developments are shrouded in uncertainty, but they play a key role in how quickly inflation can be controlled and the policy rate lowered,'' the bank said.
Inflation, which stood at 15.9 percent in October, will peak at 22.7 percent in the first quarter of next year, Sedlabanki said. In 2010, the economy will contract 1.7 percent, less than the July estimate of 1.9 percent, it added.
``The credibility of the Central Bank's inflation target has been badly damaged, and it will be extremely difficult to continue on the basis of that target alone in the months to come,''
Did the artificial foreign demand for the Yen kept the currency from plummeting.
This long article said that Japan did not allow Japanese domestic borrowers (small firms) to borrow the zero interest loans, instead Japanese domestic borrowers could only get high interest rate loans (at loan shark rate level).
This long article continue to said that this policy kept Japan in a very prolong Depression, but Japan encourage foreign investors (Hedge Funds) to borrow as much as they want.
http://www.globalresearch.ca/
index.php?context=va&aid=10695
In 1985, U.S. diplomats asked Japan to please commit economic suicide. Angered by the striking success of Japanese industry, U.S. officials asked their compliant Japanese counterparts to raise the yen’s exchange rate so as to make its industrial exporters less competitive, and in due course to flood its own economy with credit so as to lower interest rates, thereby enabling the Federal Reserve to flood the U.S. market with enough cheap credit to give a patina of prosperity to the Reagan Administration.
Japan’s yen crisis – payback for the "carry trade"
To help bail out the banks, Japan’s government urged them to engage in what has become known as the "carry trade": lending freely created yen credits to foreign financial institutions at remarkably low rates, for these borrowers to convert into other currencies to buy bonds or other assets yielding a higher rate.
Hundreds of billions of dollars, euros and sterling worth of yen were borrowed and duly converted into foreign currencies to lend out at a markup.
Arbitrageurs made billions by acting as financial intermediaries making income on the margin between low yen-borrowing costs and high foreign-currency interest rate.
RE: After looking at those debt numbers yesterday, and also the projected deficit and GDP data, yes, it does appear that the US dollar may soon totally and completely implode.
With all of the borrowing going on lately, the interest on the national debt has already become an impossible burden to bear. Add the deficit and all of the entitlements to that and it becomes obvious that the US is already bankrupt.
The borrowing frenzy will soon end as the "full faith and credit" of the US becomes a worthless guarantee. The only remedy left will be to print more money -- a lot more money. Every time the Fed lowers interest rates, they are essentially what they are doing. They create the rest of the money out of thin air.
After that will come the hyperinflation that will cause the civil unrest that will result in the declaration of martial law and terminate in our decent into a fascist dictatorship.
On the other hand, Obama may actually be able to turn things around.
V.L.
Schiff was right about the housing bubble. He has been wrong about everything else as his track record shows. I feel he has a story to SELL. He continues to promote what his firm sells and will not deviate from that because he is way over leveraged and invested in it. Anything to bolster the price.
I agree that the financial issues will continue to get worse for a time and that Obama is just another side of the same coin, but I am reluctant to listen to a person who clearly has a BIG financial interest in the things he is saying.
Inflation-Yes
Gold a good investment? No, Nevada mines look to be wrapping up all precious metal extraction and just focusing on Molydenum, provided it stays above $10.00. I am not an expert on this matter by any means, but half of my extended family and friends here are associated with mining in some way, and they are all bailing out trying to find other employment. Maybe something is up. I look at mining stock prices and they are falling faster than the space shuttle through the atmosphere. Maybe just like the lies of Bear Sterns and Lehman in which they told us that they were good to go, their stock prices spoke VOLUMES over any fake posturing. I think this could be true of the stock prices for mining. We are told that the metals complex is a hedge or good investment due to potential inflation, it may just be a cover story of some kind. I am avoiding all commodiites as they are just another investment choice and have no greater signicance than buying Yahoo in the hopes of a take over.
Peak Oil has reared it's ugly head again. It is not a new concept, it has been around in one form another since the major US oil rush in the early 1900's. It is a concept to bolster prices and not a scientific argument. I encourage people to read a scientific article written by A. I. Levorsen called "Discovery Thinking"(AAPG Bulletin July, 1943 V.27 No.7 P. 887-928). He discusses that it is quite evident that oil is a FINITE resource, however we have to refine and expand on what we know about how petroleum is made and found within the Earth.
More recently, Sequence Stratigraphy is an advancement in geology that came about in the early eighties and has increased our understanding of how sedimentary rocks form and where to look for petroleum. As I write, oil companies have moved so far beyond this intial breakthrough, who knows where it stands today. By the way I have a masters in Geology, so I do have some knowledge of this subject. If you disagree with me, I understand. Popular media has become our source of science and information. Short sound bites do not replace dedicated research. I just encourage others to look into the scientific basis of "Peak Oil", and not just some guy("Expert") in an investment firm or an apocalypse freak on the internet.
Nevada is Burning
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