January 28, 2005

The Coming Collapse of the Dollar

I expected to be disappointed and frustrated at the new book by Turk & Rubino, but I have to say I was positively surprised. It's good. This is a book that will be read avidly by all American journalists seeking for the answer before today's deadline as to why the dollar bombed so badly. (Links 1)

It's concise, it's well written, and it's also pretty darn accurate. Of course, it is a little loose in the economics, but given its conciseness that can be expected, and nothing is fatal in its layout of the basic story. Lots of nice graphics, and neat sections at the back telling you what to do about it.

The central message is this: Americans borrowed too much, exported too many dollars and too few goods. Hey, it was good while it lasted, but now the combined effect of the rise of the Euro (only 5 years old and already as big as the dollar!) and the ribald profligacy of the Bush Administration have given the world an alternate as well as a reason. By my guess, there has been an adjustment of about 10% in dollar reserves worldwide, with another 10% to come. Doesn't sound like much? Consider that about 60% of those dollars were overseas, 10% already went looking for a new home and another 10% to come.

The bad news is that you (yanks) don't own your own currency. The worse news is you're about it own more of it! Oh, and add to that the pent up pressures of decades of central bank manipulation of the gold unit, the sell-of of reserves, mucked up leasing programs and no doubt other scandals, and gold might just burst its sensible barriers.

How low will the dollar go? It's tough to say. It's currently out of balance, and another 20-30% seems reasonable. I however do not believe "it's all over" for the dollar. The reason is simple; no matter how badly the people have borrowed their future away, there are still 250 million of them sitting on top drawer capital assets and possessing a capability to work. Yes it will readjust, but no, it isn't all over, unless they close the borders like they did in the 1930s. If they start shipping the Mexicans back, then watch out, America (do the maths, there are more Mexican workers than there are unemployed "americans").

Anyways, I digress slightly. If you are an American, and if you're looking for a view of what's happening without having to spend your days being depressed by what passes for American media, pick up _The Coming Collapse of the Dollar_. It's only $27 at the local book store, and the clear and concise message will give you valuable pause for thought. Even if you don't quite subscribe to the message, consider it a valuable thought exercise in where America is going next.

Posted by iang at January 28, 2005 10:57 PM | TrackBack

You do have to be careful though dude...

(1) The euro and pound have been plummeting against the dollar since...


...almost exactly the moment of the book's publishing!

(2) It is commplace that regarding a commodity price that -- if you look at the big picture, say twenty years, the price tends to simply move up and down -- that whenever the price is at the top of bottom of that swing people get excited and assume the price is about to move cataclysmically. Of course after a couple years it turns out to be just the normal up and down movement in the long term.

(3) Contrarianism almost always works: at the exact moment EVERYONE is saying something is now obvious, it usually goes the other way

(4) As I always say to Mr T., to me it makes no sense that the USD would collapse...against the Euro, Pound, Yen. The notion is risible. It would be like a parent flicking the remote control from The Simpsons to Southpark because they don't want their kids watching that lowbrown Simpsons stuff. The US has a bit of debt, but then the economies of everywhere else is pitiful. I can see ALL fiat currencies collapsing AGAINST GOLD, for sure. But the concept of rushing from the USD to the security of the Euro or Yen is muddled.

So, it's a tricky issue!

Posted by: JPMay at January 29, 2005 07:38 AM

> unless they close the borders like they did in the 1930s.

Well, they did it before, so why not again? It won't surprise me if I end up seeing an attempt at a virtual Berlin Wall put up in America. Cases have been made that America is in worse fundamental financial/economic shape than it was back then. Intellectually I'm in no position to judge these cases, but they made sense to me.

Watch to see attempts to trap/keep wealth inside America as the government needs to take more and more of it.

Watch to see attempts to trap/keep a fair amount of labor that is not really old or really young (the humans) inside the US as labor needs to work (create value) to stay warm and breathing. The government will need, want, or attempt to take more and more of the value created by labor.

Posted by: bob at January 29, 2005 07:46 AM

LOL... Most of your points are valid, but are more technically inspired, I would hazard. The book talks about fundamentals, and these fundamentals have been in existence for about 4-5 years, since which time, they have moved against the dollar rather than for.

The mystery for the economists has been to explain why the shift didn't occur earlier. This has been hand-waved away in one of two ways: the "3 booms" explanation, and the "Greenspan is God" view. I'd say it is still a mystery why a correction wasn't brought in earlier, but like all economics, we'll know in 5 years, once the hype and bluster is factored out of analysis. Not that it will do any good then!

Whether there is "more to come" in big shifts is the big question. Yes, at the moment, dollars are moving up in their channel. I think the fundamentals still push down though, simply because nothing fundamental has changed. Foreign banks are still divesting holdings, and Americans are still borrowing big.

(This is not exactly great news for the Europeans as they are already suffering under the strong Euro. Same with the Yen.)

You're (4): of course. the notion that the dollar collapses I take as journalistic heat. Economies of 250 million people don't simply collapse. The get poorer and richer, at the margin, but anything that moves them more than 5% outside the range of their size in a year has to be treated with suspicion. 2% is a good number.

Posted by: Iang at January 29, 2005 07:49 AM

"It's only $27 at the local book store..."

Which, two years ago was $40CDN, and 32 EUR, but is now $31 CDN and EUR 22. (Very roughly.)

Posted by: Adam Shostack at January 29, 2005 12:11 PM

I think people should create a online democracy and a new currency togo with it. It would exist independent of all other systems before it reaches dominance.
It would work like this everyone who joins would get an account with one unit of currency electronically registered as a decimal 1.0... it would have no limit to what level it could be divided as long as the current computer systems can handle it. Now anyone with this account can spend into anyone elses account and also create an empty account with a political goal attached and if people agree can spend into it for work towards it's completion.
Also anyone with over 101% of original account level would be taxed 1% of there account calculated every mement and removed and then given to those who have less then 99% account level.
There could be many ways to represent one's account and could be automatically converted like e-gold for one's taste the most acurate though is a decimal. This nominal redistribution is for assurance from extreme poverty and it keeps people from getting too rich in these Democracy dollars os mono money the power of one for each individual collectively is that everyone starts out with the same share and people with more automatically gives to people with less but not too much! and since everyone with less then 99% get an equal share then it does not reward to completely dump your account selling your sole amount. Oh and all those goal account would be taxed too, also collectively all could decide to use upto 49% of the tax for other uses. Though the value would start as zero it would rise little by little forever because it can be split to a infinately finite level this could make everyone wealthy even if one was really bad with money the residual income would be enough to live on eventually and all would have a fair shake while still alowing for wealth to accumalate "that would actually make everyone else richer too" this would be great for when robots and A.I. produces everything it would save us from unemployment. just a thought;-)
Daniel Hazelton Waters

Posted by: Daniel Hzelton Waters at February 1, 2005 08:45 PM

Average American household holds over $112,000.00 in debt.
Corporations have massive debt. Federal, state, and local
all have high debt. Combined, it's a disaster waiting to happen. Not to mention all of the unfunded liabilities.
Debt is the most powerful force in economics when it finally
grinds systems to a screeching hault. Flush economies can
be messy, and people and government are able to swim to shore after making misjudgements and mistakes. Not with
red ink, and especially not with this amount of it.
Jobs in China, India, and Mexico, and now elsewhere in
a big way are much lower paying, and have a deflationary effect on American wages. So we've got a government (system)
with massive debt, deflationary pressures, higher fuel
prices, less spending power, less borrowing power, and
the debt keeps rising. It will end in a massive liquidation
simply because is needs to stop. If it was to continue,
the entire system--globally (if it already isn't)---would
collapse. Tax cuts, overspending, scandals, market
manias, housing manias.......all need to come to an end to
bring liquidity back into the picture. It's all about red and black ink, folks. There is nothing tough about comprehending this, as Mom and Pop stores of yesteryear
already know that--profit and wealth equates to health
in business. NOT DEBT.

Posted by: Bill Hoyes at June 10, 2007 02:19 AM

Get ready for nasty weather. Later in 2008 the world will start changing rapidly. In an economic meltdown technology will only increase faster. By 2013 things will really undeniably be changing.

Posted by: Daniel Hazelton Waters at June 12, 2008 05:35 PM

Well, it happened. And after the all of the so called
stimulus packages that have been offered up on a global scale are gone, deeper we shall go. You can not compete with little tyrant-run nations who allow their workers to
make 74 cents to make a Liz Clayborne jacket that sells for $170.00 here in the states. You have heard people like George Bush boast that "America can compete". Really? This nation can compete with 74 cents? Who needs medications in this picture?

Posted by: Bill Hoyes at September 10, 2009 12:04 PM
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