More Great Economic News

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Thanks to Madanthonywane for posting article: Crisis may may 1229 look like a "walk in the park." I had not fully realized that there is not really any "lender of last resort" for the EU until reading it. The ECB does have some money creating powers, but not yet all that a sovern government has.
The following is quite scary too:

"... Saudi Arabia plans to establish a sovereign wealth fund that is expected to dwarf Abu Dhabi's $900bn and become the largest in the world.

The new fund will be a formidable rival for other government-owned investment funds in the Middle East and Asia, which are playing an increasingly active role in channelling capital to western companies, particularly financial companies hard hit by the US mortgage meltdown. ..."

From:
http://www.ft.com/cms/s/f7e31b46-b0...Saudi+Sovern+Fund&aje=true&dse=&dsz=&x=12&y=6

If the Saudi Arabia buys stock in companies instead of US treasury bonds, expect US Treasury to raise interest rates and US economy to rapidly pass into recession, (assuming it has not already as some believe). This, could trigger the run on the dollar I have predicted will occur between Oct 2008 and Oct 2014 sooner than I expected. The damage that saudi Arabia could do to US by simply stopping to buying Treasury bonds would be much greater than the sending of 15 of the 9/11 attackers did. ....

{Billy T goes on at:
http://www.sciforums.com/showpost.php?p=1686888&postcount=70
to show GWB's loyality to Saudi government and oil, not Joe American.}
 
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Nikelodeon said:
Damage Saudi Arabia could do, but why would they do it?
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To protect the purchasing power of their reserves.

Now same withmore detail:

The first governments that decide to convert their US Treasury paper promisses into actual ownership of productive business (buy stocks instead) will be better off than those who delay doing so, for two reasons:

(1) After governments, u,v,x,y have bought stock in say Merrill Lynch*, then when government z finally gets around to buy the price per share will be higher. For example, (in approximate numbers from memory) couple of days ago, when Cingapour's sovern fund bought about 10% of merrill lynch for 6 billion dollars, the share price jumped up about 4.5% - It is sort of like nuclear war - agreat advantage to who stikes first.

(2) The value of the treasury paper being held drops as others are duming it on the financial market. If you are one of the last to do so, your "gain" will be very negative. - Again much better to "get out first."

Part of the reason every government (except Japan) with large reserves has recently set up a sovern fund is to try to "easy out" of US Treasury paper, without causing the value of that paper they still hold to crash. During the last year or two, the net return on Treasury paper, as measured in the local currency (or local purchasing power, for things like paying the salaries of government workers etc.) has sharply declined with the fall ot the dollar. - I.e. the loses far exceed the interest paid. Central banks are not entirely stupid. They have learned by experience that holding US Treasury paper is a dumb thing to do.

Japan is a special case. Japan will no doubt get stuck "holding a big bag of worthless Treasury paper." This is beause Japan can not defend itself from even North Korea, much less China. Japan depends upon the US 7th fleet in the sea of Japan for its defense. The loss Japan will experience by being last (or nearly the last) to dump US Treasury paper will be the final punishement inflicted on them for Pearl Harbor when the US wrote their constitution that effectively outlawed any military comparable with their wealth.
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*more ML details at:
http://www.sciforums.com/showpost.php?p=1685444&postcount=66
 
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Billy T said:
Japan is a special case. Japan will no doubt get stuck "holding a big bag of worthless Treasury paper." This is beause Japan can not defend itself from even North Korea, much less China. Japan depends upon the US 7th fleet in the sea of Japan for its defense. The loss Japan will experience by being last (or nearly the last) to dump US Treasury paper will be the final punishement inflicted on them for Pearl Harbor when the US wrote their constitution that effectively outlawed any military comparable with their wealth.
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Wow Japan isnt safe from this?
 
Nikelodeon said:
Wow Japan isnt safe from this?
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US has several "unspoken deals"

US / Japan deal is: Japan does not dump Treasury bonds and US keeps 7th fleet in sea of Japan.

US / Saudi deal is: US helps keep that very undemocratic set of rulers in power and Saudi Arabia pumps out oil to drive the price down as punishment for any one, (like Saddam) who tries to sell oil for Euros etc. (Recal that in the first gulf war they pushed the price down to $10/ barrel, but the excessive production rate probably seriously damaged their oil fields and they can no longer do that. - Despite greatly increased demand and prices they are now producing less. It appears the "peak oil" has already occured for the Saudi oil field.)

Only reason why most governments do hold large fraction, if not all, of their reserves in dollars is that oil is only sold for dollars. If and when this ceases to be true, their central banks will dump dollars and dollar will collapse, sending US and EU into deep depression.

This is now inevitable, thanks to GWB's stupid policies, but one can hope that it is not soon so that China will be able to prosper with domestic sales and exports to suppliers of the food stocks, raw materials and energy its factories and people need. If US and EU go into deep depression now, China will also and entire world's economy may take several decades to recover. That would truely be the "lost generation" but China and India do provide hope that will not happen. US, with GWB's doubling of the debt and needless wars, has effectively already eaten it seed corn: (Outsourcing, factories closing, selling even parts of its financial industries now, falling values of Joe American's main asset, his home, etc.)
 
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Billy T said:
If and when this ceases to be true, their central banks will dump dollars and dollar will collapse, sending US and EU into deep depression.
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So you're predicting the entire West will collapse? Not just the US?
one can hope that it is not soon so that China will be able to prosper with domestic sales and exports to suppliers of the food stocks, raw materials and energy its factories and people need. If US and EU go into deep depression now, China will also and entire world's economy may take several decades to recover. That would truely be the "lost generation" but China and India do provide hope that will not happen.
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I don't know if it would really be such a great thing for the world at large to have China as the dominent power.

I still hold out hope that we can steer the waters between Scylla and Charybdis and come out Ok.

But if the US does collapse, would that make the cold war a tie? Two Behemoths go at each other for decades. One finally collapses. The other declares victory, takes a few steps, and collapses itself. Perhaps not a tie, but a pyrrhic victory.
 
madanthonywayne said:
So you're predicting the entire West will collapse? Not just the US?
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Yes, but not "collapse" only "deindustralization" for China's new economic colonies, like Brazil, if they are included in your "west." A step backwards for them. For example, Brazil will produce slightly morte than 3 million cars this year, and a few years after the collapse of dollar, with US and EU in deep depression, Brazil will produces less than 100 thousand. - Most needed in Brazil will be sent from China as payment for soy beans, iron ore and alcohol etc. and cost less than if Brazilian made.
madanthonywayne said:
...Two Behemoths go at each other for decades. One finally collapses. The other declares victory, takes a few steps, and collapses itself. Perhaps not a tie, but a pyrrhic victory.
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Not necessarily if you take a long view of human progress. Mankind is still trying to develope a better economic system (among other things). We have come a long way with the invention of money - a great advance over the barter system but there is still much to be done. (See first link given below for more details of post WWII developments / possible progress in economic systems.)

Almost all reading here know the flaws of the central planned economies, like old USSR, but few recoginze as clearly as I do the flaws of the US or western world's system (and I am not speaking of the widely recognized "Evils of Capitalism" that anyone significantly left of center can cite as part of their creed.) To understand better what I am speaking of see my post at:

http://www.sciforums.com/showpost.php?p=1687463&postcount=38

If you have never read my "6L cycle" post, also see it at:

http://www.sciforums.com/showpost.php?p=1502039&postcount=1

To better understand how the "Keynesian advantage of paper money" has be preverted in last decade into not a source of stability (It never really worked as discussed in the first link for democracies) but into a source of instablity as solutions to short term problems lead to much greater disasters later.
 
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sandy said:
Gold passed $843 today! Gold prices rose by nearly 33% this year! .
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And oil is up 55%. Most metals beat gold's price rise also. All are priced in dollars, so the truth is that a pound of gold will buy less of most things today than it could a year ago.

You have a stange POV of what is "good news" or are just ignorant of the fact that a nominal price rise is not an indication of increased purchasing power if the dollar is falling faster.
 
Billy T said:
...You have a stange POV of what is "good news" or are just ignorant of the fact that a nominal price rise is not an indication of increased purchasing power if the dollar is falling faster.
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If your million-dollar investment in gold went up to 1.33 million, you'd be happy too. :)
 
sandy said:
If your million-dollar investment in gold went up to 1.33 million, you'd be happy too. :)
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No - I would be kicking myself for investing in the metal that did the worst of all. Even drums of oil would have been better. I hate to make such a bad choice with investments that I actually lose purchasing power! My Indian and Brazilian ADRs did better than your gold and produced a gain in purchasing power.

Note that also I posted here several years ago fact that I was investing in these ADRs. You (to best of my knowledge) have never indicated that you were buying gold. Only thing you have posted is that you were "buying up real-estate." As property values are continuing to slide down at an ever accelerating rate, I guess you are not inclinded to talk about the millions you put there. (Not that I believe you have invested millions anywhere - any one as ignorant of the basics of good investments as you, one who thinks nominal gains are what matters, etc. even if they did have millions to invest would soon lose them.)

PS the IRS will be happy about your 0.33 million gain - you get to pay them taxes when you sell, even though you have lost purchasing power!
 
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Billy T said:
And oil is up 55%. Most metals beat gold's price rise also. All are priced in dollars, so the truth is that a pound of gold will buy less of most things today than it could a year ago.

You have a stange POV of what is "good news" or are just ignorant of the fact that a nominal price rise is not an indication of increased purchasing power if the dollar is falling faster.
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Maybe I'm missing something here, but wouldn't your purchasing power be decreased when you went to convert your dollars to another currency?

Assuming you made a 33% increase in your investment, and you don't plan to trade your dollars for another currency, how is that a bad investment?
 
Billy T said:
Yes, but not "collapse" only "deindustralization" for China's new economic colonies, like Brazil,
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Let's assume you're correct, and the US goes into a mega-depression type economic meltdown.

Why do you think China would then become the dominant nation in the world? What is China's comparative advantage over the US and the West in general?

Low pay for the workers is one big advantage. A West in the midst of a great depression would, no doubt, be paying its workers less. Minimal environmental regulations is another advantage. Again, a West hit with a depression would likely decide environment is a luxury we can no longer afford. Ditto for other regulations that impede business.

To me, the most likely long term effect of such an event would be a loss of civil liberties in the US and other Western nations. Germany recovered from hyper inflation after WW1 and went on to almost take over the world. It then recovered from being devastated in WW2 to again become a major world power.

Why should this particular situation be one we can't recover from? Yes, China would be well positioned to improve its status on the world stage. But I really can't see the whole world becoming de-industrialized and basically providing raw materials for China because of one crisis.
 
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