"... The massive account deficit we currently hold with the rest of the world totals some $800 billion per year. Where the heck is all that money coming from? From foreign investors in China, Japan, the Middle East, and nearly every other conceivable corner of the globe. ...
But like a massive Ponzi scheme, the fun will certainly end. In the past six years, the value of the dollar has taken a serious beating. The euro, worth $0.85 a few years ago, is now worth $1.47. ...
How about the foreign investors funding our perilous spending party? You'd better believe they're keeping a close eye on the dollar's precipitous plunge. As a foreign investor holding assets denominated in dollars, every drop in the dollar erodes the value their investments will be worth when they choose to convert them back to their native currency, whether yuan, yen, euros, or pounds.
{Billy T insert: This loss of purchasing power by foreigners who foolishly funded the US deficits has taught them a lesson - I.e. Some are stopping to accept dollars and most are setting up sovern funds to buy real assets, instead of the US treasury's paper promisses. - In Sept of 2007 the net sales of treaury bonds was negative, for first time in history.
Some advance the argument that US need not fear (Don't worry, Sandy is not afraid) massive selling of Treasury bonds by China* etc as no one would be there to buy, but the holders of the bonds do not need to sell the bonds to anyone to destroy the US economy. All that is necessary is not to buy more (which they have started doing) and wait for those already held to mature. US must then either default o run the printing presses. Either way, the US ECONOMY WILL BE DESTROYED but Sandy is not afraid., nothing can hurt her, she reads the bible and prays.}
How do we keep our foreign investors happy? With a rapidly depreciating currency, there is but one way to keep them enticed: higher interest rates. You heard it: higher interest rates. With the housing and credit markets swimming in turmoil, the idea of higher interest rates sends shivers down the backs of homeowners facing foreclosure, and rightly so.
I think you can see the predicament we face: One part of our economy demands lower interest rates to bail out the housing debacle, and foreign investors who finance our massive spending habits demand higher interest rates to forestall the dollar's demise.
My goodness, this is looking scary. ..."
Read all of "The Impending Destruction of the U.S. Economy: Part 1" at:
http://www.fool.com/investing/gener...ing-destruction-of-the-us-economy-part-1.aspx
(Part 2 is due out next week. If I notice it, I will again extract part for posting here.)
Note about fool.com or The Motly Fools" (two brothers): They are far some "bleading-heart liberal rag." They are an investment evaluation firm, and often have a jump on some of the others in their recomendations. I have read them for years. They are syndicated in many US papers financial sections (for example, the main paper of Atlanta, GA).
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*as I have repeatedly pointed out it is not yet in China's interest to destroy the US. China still needs to sell much of its production to US and EU (more went to EU in 2007 than US and US is becoming less important to China with every passing year.) The Chinese domestic middle class is both rapidly growing in numbers (almost a million peasants move to the cities each month, and in individual purchasing power.) The domestic sales are current up 18.8% YoY. In addition, the 30 year contracts that China is signing in Africa and South America for the raw materials, food stock and energy represent large demands on the production of China's factories. In about a decade, China will not need to sell anything to US or EU and can tell US and EU to
"Go to hell. - Your paper money is worthless." as two oil exporters had already stated. (But they take dollars still and just convert them quickly to more stable or appreciating currencies, etc.) Brazil starting 1/1/08 will not accept dollars from Argentina (and conversely) to settle the bi-lateral trade deficit, and this is growing more common else where. The dollar, is after all in reality, when faith in US economy is gone, only green paper.
Also note that when China does not need to sell to US and EU it will be greatly to China's advantage to destroy their economies so the demand for the things China must import will be greatly reduced and cost China much less.
