US Dollar Crash Next?

[itcheroni]

With all the talk about the Auto bailout and our attitudes about the free market, I thought I would share and receive insights on where the US Dollar is headed. Many of the same people who predicted and warned of the current housing/financial crisis as well as the tech bubble are predicting a precipitous decline in the dollar. What Peter Schiff says makes a lot of sense to me so I'm posting a video to see what you guys think.

http://www.youtube.com/watch?v=2I0QN-FYkpw

Just Wednesday: http://www.europac.net/Schiff-CNBC-12-10-08_lg.asp

[Desertrat]

I see no way not to have a significant decline in the buying power of the dollar. As to "precipitous", that's a function of such things as other countries' own declines, given worldwide inflation of currencies.

The low oil prices mean financial failures among many support companies--engineering, for example. And, deferral of exploration/development at a time of declining oilfield output. That will mean much higher prices in the relatively near future.

The credit crunch means many farmers in foreign countires are not getting the loans for seed and fertilizer, which will drive up the world price of food grains. "World" includes the U.S., of course.

Trans-ocean shipping is in great decline for credit, as well, which adds to the grain-cost problem--as well as for coal and other bulk items.

So, yeah, the cost of living is going up as the economy is going down.

The obvious big danger is all this debt and dollar-printing now going on. Face it, a trillion-dollar federal deficit this fiscal year and probably even worse next year, coupled with a large balance of payments add-on makes the dollar very vulnerable.

'Rat

[itcheroni]

I think the dollar is in much worse condition than other currencies. Other countries are having a hard time, but America is in a unique position.

Looks like people aren't interested in this topic. It's a shame. I think it could end up being a much larger crisis than our current one.

[gotzero]

I doubt/hope there will be a dollar "crisis".

The dollar increasingly appears to be falling out of favor vs. the Euro as the world's reserve currency. I doubt it will reclaim any of that ground.

That said, I am not changing all of my dollars for guns yet. ;)

[itcheroni]

I doubt/hope there will be a dollar "crisis".

The dollar increasingly appears to be falling out of favor vs. the Euro as the world's reserve currency. I doubt it will reclaim any of that ground.

That said, I am not changing all of my dollars for guns yet. ;)

But you can change them for Euros, Canadian Dollars, Singaporean, Australian, Yen...Or better yet, buy foreign stocks that pay dividends in those currencies.

[Desertrat]

gotzero, you better hope there's not a truly serious "dollar crisis". Doesn't matter what country you live in, there will be some serious financial hickeys--for instance, those who need to sell to us to maintain their own incomes.

And while one can invest in assets which are denominated in other currencies, there is then the complexity of having US cash on hand to cover day-to-day living. The U.S. is one of the less-sophisticated countries insofar as businesses recognizing other currencies, or ready conversions at a local bank.

[itcheroni]

gotzero, you better hope there's not a truly serious "dollar crisis". Doesn't matter what country you live in, there will be some serious financial hickeys--for instance, those who need to sell to us to maintain their own incomes.

And while one can invest in assets which are denominated in other currencies, there is then the complexity of having US cash on hand to cover day-to-day living. The U.S. is one of the less-sophisticated countries insofar as businesses recognizing other currencies, or ready conversions at a local bank.

Why wouldn't they just begin consuming more? I don't think they'll be in any trouble after an adjustment period. I think the theory that countries like China need us to consume their goods will be debunked. It would be true if we gave them real money or goods. We're giving them IOUs that we can never pay.

[gotzero]

I have held some money in euros for awhile. Recently, the dollar has actually appreciated quite a bit vs. the Euro.

China holds too much of their reserves in dollars to sell them off and create a crisis from that direction. They would need to start selling a higher percentage of goods to other countries before reducing exports to the US.

I also have money in the markets in various ways, but when anything is sold it is converted back to USD. Regardless of your thoughts about the future, you will always need to hold money in your local currency. I do not think of the dollar as a bad holder of value right now.

[Aea]

I think the dollar is in much worse condition than other currencies. Other countries are having a hard time, but America is in a unique position.

Looks like people aren't interested in this topic. It's a shame. I think it could end up being a much larger crisis than our current one.

What rational argument do you have to back this view?

[itcheroni]

What rational argument do you have to back this view?

Watch these videos. It was recorded in 2006 and Peter Schiff outlines the housing bubble at its height as well as explains his belief that the US dollar will tank. There are 8 of 8 videos in this series. You could also look up Jim Rogers. Their school of thought correctly pointed out the tech bubble and the housing bubble. Along the same logic, they believe the dollar will be the worst crash of all. It's not that I personally wish to believe that the dollar will crash, but that of all the economic forecasts out there, this one makes the most rational sense.

http://www.youtube.com/watch?v=6G3Qefbt0n4

[zap2]

Oh...but where is the $200 Oil per barrel, this brilliant man said was coming ;)


http://www.usnews.com/articles/business/your-money/2008/05/30/permabear-peter-schiffs-worst-case-scenario.html


You get some right, you get some wrong. Will the US decline some in world standing? I'm expect it to, but I'm not seeing this "collapse of the dollar"


At a minimum, the dollar will lose another 40 to 50 percent of its value. I'm confident that by next year we'll see more aggressive movements to abandon the dollar by the [Persian] Gulf region and by the Asian bloc. That's where the stuff really hits the fan.

That quote is from March 2008....hmm, those countries would really have to step up a move away from the dollar for him to be right!

The Obama presidency will be like the Jimmy Carter presidency on steroids

I don't think that could be more wrong. We've already seen Obama is willing to put moderates in place and keep people like Gates around.

I was saying oil was going to $200 a barrel in 2002.

Well I've yet to see that happen

[Desertrat]

itcheroni, have you checked out the amount of imports coming into the west coast? Down, way down. Some have estimated the change in the savings rate in the U.S. to have gone from 0% to around 10%, which pulls about $1.3 trillion out of our consumer economy.

Aea, we've committed almost eight trillion bucks to this total bailout deal. Of that, some two trillion is already in play. We're looking at a trillion-dollar federal deficit for the 2009 fiscal year, and it's estimated to hit maybe two trillion in 2010. Obama's WPA, Mark II version, just adds to the problem. No country's economy ever got healthy by printing more paper money. Inflating the money supply destroys the buying power of the currency--which is what we're doing right now.

zap2, one very good source of information about the world's oil situation is Matt Simmons. Google for his opinions. He's the head of a company which is heavily involved in financing exploration/development.

Anyhow, this present economic malaise has temporarily led to a reduction in demand, which has driven the price down. Okay, fine, for the short term. The bad part is that many projects have been put on hold. At the same time, the oilfields around the world are playing out. The best example of the horrible example is Mexico's Cantarell field. Once as large as the Saudi Ghawar, it will no longer provide us with oil after around 2012. Major amounts are only available from the deepwater offshore projects, which take five to fifteen years to reach full development.

So, give it a year or two and oil will once again take off in price. How high? Economics 101 says that when there is less of something and the demand is relatively constant, the price goes up. So, $200 is not an irrational guess.

[JW8725]

Fingers crossed I hope the dollar crashes. I want £1 = $4 at least :D

[itcheroni]

Oh...but where is the $200 Oil per barrel, this brilliant man said was coming ;)


http://www.usnews.com/articles/business/your-money/2008/05/30/permabear-peter-schiffs-worst-case-scenario.html


You get some right, you get some wrong. Will the US decline some in world standing? I'm expect it to, but I'm not seeing this "collapse of the dollar"




That quote is from March 2008....hmm, those countries would really have to step up a move away from the dollar for him to be right!



I don't think that could be more wrong. We've already seen Obama is willing to put moderates in place and keep people like Gates around.



Well I've yet to see that happen

I'm open to having my opinion changed but you didn't give me any reasoning. You just pointed at what is currently happening, which supports your opinion, to prove me wrong. But a rally in the dollar or a drop in oil prices right now isn't indicative of anything. Just look at the massive build up of home prices before it burst. The prevailing wisdom was that home prices would never fall. And every time home prices went up, it affirmed the popular opinion. So someone who said home prices are inflated and will drop severely looked like a fool and got everything wrong according to the numbers until 2007.

If you asked me to give you a reason why the dollar won't tank, I wouldn't be able to think of one (most people will respond with non-answers, such as the "strength" of the American economy). Can you?

By the way, I'm not concerned with Schiff's political ideology. I think I'm probably one of the most liberal people on MR, whatever that means nowadays.

[itcheroni]

Fingers crossed I hope the dollar crashes. I want £1 = $4 at least :D

It could be more like 1 to 10, or more, in just 3-5 years. But that mbp will probably cost the same for you! :p

[JW8725]

But that mbp will probably cost the same for you! :p

oh man :(

[Badandy]

If you asked me to give you a reason why the dollar won't tank, I wouldn't be able to think of one (most people will respond with non-answers, such as the "strength" of the American economy). Can you?


I'll give you a couple. The entrepreneurial spirit of the American people combined with business conditions conducive to entrepreneurial risk taking has, in the past, created the world's most powerful economy. This being continued, combined with the persistent importance of the Constitution and its aims of continuing a representative democracy predicated upon free will and action makes American currency and business prime targets for foreign investment and confidence. In an increasingly unstable world, America and its labor force can be counted on to churn out trillions of dollars of annual GDP.

[itcheroni]

I'll give you a couple. The entrepreneurial spirit of the American people combined with business conditions conducive to entrepreneurial risk taking has, in the past, created the world's most powerful economy. This being continued, combined with the persistent importance of the Constitution and its aims of continuing a representative democracy predicated upon free will and action makes American currency and business prime targets for foreign investment and confidence. In an increasingly unstable world, America and its labor force can be counted on to churn out trillions of dollars of annual GDP.

No offense, but that is nothing but wishful thinking. It used to be true, but it definitely isn't today. If you viewed our situation with objective, non-American eyes, I think you would agree with me.

[Rodimus Prime]

No offense, but that is nothing but wishful thinking. It used to be true, but it definitely isn't today. If you viewed our situation with objective, non-American eyes, I think you would agree with me.

that or you learned to started understand the media no longer cares about the truth and only cares about 1 think and that is making money so they spin the truth.

Remember the US dollar is 70-80+% of the world currency right now. 70-80% of the trading in the world is done in dollars not the other way around. A crash in the dollar would kill the world.

Not something you really want to see happen.

[itcheroni]

double post

[itcheroni]

that or you learned to started understand the media no longer cares about the truth and only cares about 1 think and that is making money so they spin the truth.

Remember the US dollar is 70-80+% of the world currency right now. 70-80% of the trading in the world is done in dollars not the other way around. A crash in the dollar would kill the world.

Not something you really want to see happen.

I hope didn't give the impression that I wish for any sort of crash. I only bring this up because it seems like a genuine problem based on how I understand the current situation.

Where did you get the 70-80% figure? I understand its the world's reserve currency, but that could change (and if it does, it will hurt the dollar significantly). And I didn't understand your first paragraph.

[Aea]

Watch these videos. It was recorded in 2006 and Peter Schiff outlines the housing bubble at its height as well as explains his belief that the US dollar will tank...

http://www.youtube.com/watch?v=6G3Qefbt0n4

But this is an outdated prediction as others have pointed out, and I'm sure if you asked the man right now he would have a different prediction.

Aea, we've committed almost eight trillion bucks to this total bailout deal. Of that, some two trillion is already in play. We're looking at a trillion-dollar federal deficit for the 2009 fiscal year, and it's estimated to hit maybe two trillion in 2010. Obama's WPA, Mark II version, just adds to the problem. No country's economy ever got healthy by printing more paper money. Inflating the money supply destroys the buying power of the currency--which is what we're doing right now.

Actually quite a few countries got rich by printing (or borrowing) money, it's the course of action in desperate times that has been proven to work again and again. Just look at what happened to Japan when they tried a different strategy, the economic situation was so dire it has been dubbed the lost decade.

If you asked me to give you a reason why the dollar won't tank, I wouldn't be able to think of one (most people will respond with non-answers, such as the "strength" of the American economy). Can you?

The burden of proof is on you, since you're claiming that something economically unreasonable is about to happen. If the past few months have shown as anything it's that other currencies were overinflated, the only gainers were the dollar and the yen.


Remember the US dollar is 70-80+% of the world currency right now.

http://en.wikipedia.org/wiki/Reserve_currency Can you point me in the direction of the newer data as well, I wouldn't be surprised if the US dollar gained a few percent as a reserve currency.

[Desertrat]

Aea, name me one country which increased its buying power by printing more paper currency or creating more electronic money. Don't include Japan; at the beginning of their present malaise which began in the 1990s, they already had tons of public money on hand and in private-sector savings.

Printing paper eventually destroys the buying power of a currency. If that weren't so, I'd still be buying nickel coffee in a cafe, or buying a brand new car with a window-sticker price of $2,000. We're just going downhill more slowly than such as Germany of the 1920s or the Zimbabwe of today.

A nation can't make a living from recirculating imports. Gotta make stuff for export sales in excess of import spending. We've been a relatively slow process of decay, but it's downhill all the way. The rate of loss of value of the USD depends on when folks outside the US get fed up with feeding our bad habits and dump all their paper. Slow dumping, we'll muddle along. Faster rate, we're in deep doo-doo.

And many countries are already slowly reducing their holdings of USD, looking beyond the short term. Those who think in terms of years always do better than those who think in terms of weeks/months/quarters--as with the comments about the price of oil, here in this thread.

[Queso]

There is no way to predict what is going to happen to the Dollar. It really could go either way. At the moment the money just doesn't know which direction to flow from day to day. It can't go to the Pound or the Yen, and both India and China are looking increasingly exposed as the western appetite for consumer goods falls. So it flits instead between the Dollar and Euro as the traders try and dodge the bad news days for each.

2009 isn't going to be fun at all, and even 2010 isn't going to look particularly rosy. Seat belts on guys, we're only just heading into this turbulence I'm afraid.

[Badandy]

No offense, but that is nothing but wishful thinking. It used to be true, but it definitely isn't today. If you viewed our situation with objective, non-American eyes, I think you would agree with me.

No offense, but I think I'll go with the proven course of American economic history over your personal opinion you'd see that America is actually different than the rest of the world. We are not unequivocally better at everything, but you'd be nuts not to point to the American entrepreneurial spirit and our labor force as something this is both enduring and constantly reinventing itself to create profitable and successful businesses. You can despair all you want and think we're all screwed, I'm going to go to school, study all I can, and work on creating a business that's going to get me rich and contribute the economy.

[dukebound85]

Why wouldn't they just begin consuming more? I don't think they'll be in any trouble after an adjustment period. I think the theory that countries like China need us to consume their goods will be debunked. It would be true if we gave them real money or goods. We're giving them IOUs that we can never pay.

rubbish. to say the dollar failing wont impact china is like saying the worlds economy wont be affected by the US downturn. oh wait.....

[fivepoint]

Fingers crossed I hope the dollar crashes. I want £1 = $4 at least :D

Why, so your country's export market collapses? This would be the faster way to destroy your manufacturing base than you can even imagine.



Aea, name me one country which increased its buying power by printing more paper currency or creating more electronic money. Don't include Japan; at the beginning of their present malaise which began in the 1990s, they already had tons of public money on hand and in private-sector savings.

Printing paper eventually destroys the buying power of a currency. If that weren't so, I'd still be buying nickel coffee in a cafe, or buying a brand new car with a window-sticker price of $2,000. We're just going downhill more slowly than such as Germany of the 1920s or the Zimbabwe of today.

A nation can't make a living from recirculating imports. Gotta make stuff for export sales in excess of import spending. We've been a relatively slow process of decay, but it's downhill all the way. The rate of loss of value of the USD depends on when folks outside the US get fed up with feeding our bad habits and dump all their paper. Slow dumping, we'll muddle along. Faster rate, we're in deep doo-doo.

And many countries are already slowly reducing their holdings of USD, looking beyond the short term. Those who think in terms of years always do better than those who think in terms of weeks/months/quarters--as with the comments about the price of oil, here in this thread.

+1



rubbish. to say the dollar failing wont impact china is like saying the worlds economy wont be affected by the US downturn. oh wait.....

+1

[Queso]

Why, so your country's export market collapses? This would be the faster way to destroy your manufacturing base than you can even imagine.
LOL. UK manufacturing base? Where have you been for the past couple of decades? :D :D

[fivepoint]

Any exports. Manufacturing, agriculture, high-technology. The key word here, is exports.

[Queso]

Any exports. Manufacturing, agriculture, high-technology. The key word here, is exports.
Yep, and believe me apart from some whisky distilleries we don't have any. Our entire economy was converted to depend on financial services by the Thatcher government, which was all very well and good whilst the Scottish had plenty of oil to pump out of the ground to stabilise the rough spots.

But it now appears a straw house isn't particularly strong when the wind blows.

[itcheroni]

Actually quite a few countries got rich by printing (or borrowing) money, it's the course of action in desperate times that has been proven to work again and again. Just look at what happened to Japan when they tried a different strategy, the economic situation was so dire it has been dubbed the lost decade.

Like Russia in the 90's and Zimbabwe now?


The burden of proof is on you, since you're claiming that something economically unreasonable is about to happen. If the past few months have shown as anything it's that other currencies were overinflated, the only gainers were the dollar and the yen.


I can think of a lot of reasons why the dollar will go down. The only reason I ask for reasons why the dollar will stay strong is because I couldn't think of any.

-the more dollars out there, the less they are worth (supply and demand)
-the bailouts, for the same reason as above
-we have 10 trillion so far in debt, another 1 trillion+ next year, with no balance budget in sight.
-every time we need to pay interest on our debt, we have to print those dollars, decreasing the value even more.
-our GDP is 70% consumption and our trade deficits are terrible
-the Fed. reserve insists on an irresponsibly low interest rate to "jump start" our economy. It just further cheapens our money.
-when China begins to sell their $1.5 dollars or depeg their currency from the dollar.

rubbish. to say the dollar failing wont impact china is like saying the worlds economy wont be affected by the US downturn. oh wait.....

Once the RMB depegs from the dollar, China's currency will go through the roof. They will have more spending power than ever and actually start consuming. They will suffer for a short adjustment period, but they will benefit in the long term by not accepting worthless American debt for their goods.

[Desertrat]

The sad thing is that the incoming Power People are just as foolish about monetary policy as the outgoing Power People. Swapping Bush for Obama is an even trade.

Another view with which it's hard to argue:

http://www.lewrockwell.com/rozeff/rozeff245.html

"The risk of ruin of the U.S. government was already large before the recent financial problems occurred. The government already had made Medicare promises that it could not keep without strangling the economy or otherwise seizing wealth through high taxes and inflation. But now, as it piles program on program, and contemplates huge public works spending and the accompanying deficits, the risk of ruin is rising even more.

Our officials are not so much fearless in taking these risks as ignorant and unable to adapt to reality. They are ignorant because they do not know any better. They are both stupid and unable to adapt to reality because they are turning to the same methods that have supposedly worked in the past to stave off downturns in the economy. These are deficit spending and money-pumping. They seemed to "work," but they never did. Not understanding logic, our officials mistook their manipulations of economic activity combined with the normal forces of economic recovery for a healthy economy."
_______________

I've watched the decay of the dollar since LBJ's guns'n'butter policies of the mid-'60s. By the mid-'70s I started making myself as secure as possible from what I saw as the inevitable results of federal monetary policy. I'm just glad to see I wasn't all eat up with the terminal stupids...

'Rat

[bradl]

No offense, but I think I'll go with the proven course of American economic history over your personal opinion you'd see that America is actually different than the rest of the world. We are not unequivocally better at everything, but you'd be nuts not to point to the American entrepreneurial spirit and our labor force as something this is both enduring and constantly reinventing itself to create profitable and successful businesses. You can despair all you want and think we're all screwed, I'm going to go to school, study all I can, and work on creating a business that's going to get me rich and contribute the economy.

Proven.. heh.

I read a blog this morning about how the Austrian School (http://mises.org/etexts/austrian.asp) of economics had the most logical explanations of what is going on right now, and aligns with most people's experiences. A quick blurb from the blog:


Peter D. Schiff (http://blog.mises.org/archives/008039.asp) is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut. He is a follower of the Austrian school of economics and has predicted our current crisis years in advance. Peter, by using the logical conclusions drawn from economic analysis, predicted the credit crisis, the housing devaluations and many more of the economic maladies. Here is video footage of news programs where Peter was laughed and mocked for his economic views. Notice how he stands his ground and does not give in. Like the old saying goes, “A man with the facts is not at the mercy of a man with an opinion.” I salute Peter Schiff for his economic stands against the hysteria of the crowds. We need more men and women that learn the truth of economics for themselves so we will not be led down rabbit holes by our government and media.


In short, some (well, a LOT) of this is from our own doing, and if someone from here saw the signs of this, and was ridiculed from it, and time showed him to be right, there is a bit of either arrogance, or naivety, or blissful ignorance that needs to be corrected in this country, otherwise it will definitely get worse and stay worse for a very long time before it even begins to look better.

BL.

[Desertrat]

bradl, my joke is that our past 80-ish years of Keynesianism is akin to a religious belief, whereas the Austrian School is based on fact/reality.

'Rat