The Day The Dollar Died

[MetalMeister]

A friend of mine made a post on another website and I find a lot of interesting correlations in this "fantasy" fiction.   

The series is in 18 parts.  This one is from the 18th of November.  All you have to do to find the other parts is walk forward in the calendar on the upper right of the page.

Anybody ever heard of this guy?  I probably have in the past but he is not on my reading circuit.  If I have, in the past, I don't remember him.  Maybe this should be made into a movie? 

http://johngaltfla.com/blog3/2009/11/18/

[MetalMeister]

Everybody got their seat belts on?

Stacking up for one hell of a ride...   

[sidewinder]

While this may be the scenario, I have seen that same chart in July, October and November.  Sooner or later one of the perma bears will be right ...... and they will will remind you of it.  Likely though, they will not mention the other two or three times they were in error. It's just a chart and it shows you where we have been. 

But, it's on the internet so it must be true.    

[sidewinder]

There was a guy who wrote one about a large meteor passing close to earth and the results from the "wake" hitting earth.  Painted a very scary picture of life after the event.

Somewhere I have a log from a guy in Brazil on their collapse and uncertain life there during this time, also an eyeopener.  Along with a guide from a Russian man outlining the way he survived and comparing what the difference would be in the U S should the same thing happen.  The U S would have a different set of problems to deal with compared to either of these simply due to the differences in societal structure.

This is a fun read, thanks. 

[MetalMeister]

I know,I know, everybody has a chart for every possible scenario on the internet...  So every lame duck is going to be right at least once for his 15 minutes or seconds of fame...

What I like about this guy is various charts that he keeps up with lock step every month.  Especially the Saint Louis FED ones.

Your welcome for the read.  I find it very intriguing about how easily the economy could come to a halt.  Until now, I have never heard anyone with the 4th option on how US works it's way out of debtor status in the event of a dollar crash.  Had never really considered the possibility of an the US having to repay or work it's way out of the debt to other countries.  I just assumed, maybe mistakenly, that we would default like a Chapter 7 bankruptcy, avoid any paybacks, and start all over with only our exports giving us any economic viability in the world.

Very interesting coincidence that Obama said in his state of the union that he wants to double exports in the next 5 years.

When I watched it live, I thought to myself that this is the epitome of a stupid politician saying ANYTHING that would obviously be impossible to all the millions and millions of US citizens who do not have a clue (but he wants their votes in November).

Maybe this is why because they already know the dollar is toast within that 5 year period of time and are not about to reveal that little bit of news.

Blankfein and Dimon have probably already broke the news to him in secret telephone calls and this call for doubling exports is his response to the country.

Only problem is it's not possible in a service based economy.  Increase the EXPORT of what?

So the basic theme of The Day The Dollar Died is we lose our lifestyle and go back to a manufacturing based economy with a lot of hard times ahead for about the next 20 years is my guess.  Self sufficiency has to be what this story line is leading up to...

Just my clueless guess!

SW, what happens to private solar electricity generating systems if there were a device/bomb that knocked out the US power grid?  I have not read anything on the subject.   

Thanks.

[onlooker]

YC:

One Scenario

Martin Armstrong wrote that the USD may suddenly die (his “waterfall effect”).
I have come to disagree with his theory.  It may happen, IMHO, perhaps in ten years time and later.  Not in the immediate future (eg 2010, 2011).

I base my thinking on what I have learnt about Government Sachs (this word exist, just google it).  I think that Government Sachs (GS) is incredibility resilience and powerful.  GS will keep on providing appropriate and timely interventions for the USD to float up and down, and gradually move downwards.

There will be no sudden death of the USD dollar.

Catherine Austin Fitts, a former Washington, and Wall Street insider, once note that no matter how obvious to outsiders (her wording, I will use “other countries”) that GS is corrupt, a loose cannon, and the USD should go down; many outsiders also want everything to continue either for their own benefit or are afraid to make changes.

Economies are linked together by the USD.  So, the prospect of GS suddenly going belly up will also mean sudden financial chaos falling upon other countries.  Therefore, there are countries which actively support GS.

China and its continuing purchasing of US treasury bill is a well commented on situation which reflects the idea that there are countries which do not want to sink GS and see the USD go down in flames.  There will be constant financial sword rattling between China and GS, but they will remain strange bedfellows.

China buys U.S. treasuries because it is the most liquid and largest world trading market. China's State Administration of Foreign Exchange (Safe) said that it would disrupt any other world market if it shifted its assets elsewhere. Safe traders have stayed away from the UK markets because of the "Negative" rating of their government debt.

Over the long term, China wants to cut its exposure to U.S. treasuries and has eased restrictions for state owned companies to acquire competitors abroad.
Just like we say that politics makes strange bedfellows, we could say the same about the Chinese -- U.S. connection.

See:  http://www.bloggingstocks.com/2009/05/25/is-chinas-record-purchase-of-us-treasuries-a-good-thing/

However, countries (China, Russia, Arab countries, Latin countries) are protecting themselves from an eventual USD devaluation by buying up hard assets, and / or setting up bi-lateral currency agreements.  I think there will be no deliberate plot by countries grouping together to suddenly sink the USD.

The USD will gradually depreciate, not fall off a cliff.  There will be no Martin Armstrong’s USD waterfall effect in the near future. 

~  ~  ~  ~  ~

Second Scenario

John Galt’s frictional story "The Day The Dollar Died" does occurs in the near future.

He says “The collapse of the dollar might just be an event measured in hours, not days as their control is not what it seems…..”

I think that if the USD did collapse suddenly within hours, then it would be due to a Black Swan event.  The mightily GS and other countries could not foresee it; and were powerless and not quick enough to stop it.   

[sidewinder]

OL I sort of look at the 1st scenario an most likely.  There really is no benefit to the rest of the world to swamp the US boat at this time.  World currencies are so tightly intertwined through trade it will be painful on everyone in a position to cause this. But we all know there are those in the world power crazy so a black swan event caused by one rouge mad man could disrupt trade enough to render those ties useless and then it escalates.

Armstrong's views on the waterfall effect may be a bit of a stretch but remember these cycles do occur ala Kondratiev and Armstrong.  Looking at the history of these waves, was it possible for those people living during any previous cycle to notice what was happening in this context as it occurred.  What Armstrong does is relate the cycles to curriency collapses which lead to mass societal changes. 

Because something happened in the past does it mean it will occur again.  Or does it?  In the case of the currencies it sure seems to repeat. Just as the founders of this country attempted to put restraints on government and preserve a way for the people to guard against tyrants. They knew as everyone should that any government made up of humans has the risk of the evil or incompetent to somehow come to power and serve only their own self interest.

My major concern at this time is a natural event which could disrupt the structure we have.  That to me is the most likely scenario as nations know what todays weaponology  (not sure that's a valid word) could wreak on the planet and I do believe would do most anything to avoid wide spread war.  The disruptions in the middle east, the occasional  Croatian type disputes will always be with us.  These are not insignificant if you happen to live in one of these places and if you did it would seem as though the world was collapsing.  The poor buggers in several African nations are constantly residing in a living hell. 

I have been in and out of war zones it seems all my life.  You draw a line on the map, cross the line and you are suddenly in a place that seems surreal.  It's as though mankind has lost it's mind.  You cross the line back into the "real" world and life is going on as though nothing has happened.   

Because of our vast size and location we have not been subject to an internal disruption even during both World wars.  The closest we have come is the Great Depression and it was caused by fiscal neglect similar to what we have now, and it may have really been set off by weather conditions causing the great dust bowl and destroying agriculture which employed about 45% of the country.

  An enemy from within is truly a novel idea to most Americans and understood by few.  I think no country could at this time tactically over come the US on her own soil.  The only way to defeat the US is to take over the government from within.  I have grave concerns something of this nature could occur.  Most Americans respond to their patriotic feelings when certain type of events happen.  They generally respect authority and look to the leaders to "solve" things because frankly, that's the way they have been raised and taught.  Cognitive dissonance is all but impossible to overcome.  Toss in the confusion of a financial crisis of epic proportions and people will turn to government because they simply will not know what to do. 

We will not be able to spend our way out of this, so current government is only buying time which will make recovery more painful for more people.  They are not unlike previous governments.  I can remember every President since Eisenhower.  Even as a youngster I remember all the talk about spending.  Ike funded the interstate system, how were we ever going to pay for it.  Kennedy and his talk about going to the moon.  My word we can never pay the cost of this NASA project.  Johnson escalated the IndoChina mess "we will never get out of debt now for sure.  and on and on.  Nixon took us off the gold standard.  Everybody wanted gold.  How's that working out.  If you held for the last 38 years you did OK.  You got to be kidding hold 38 years and HOPE.

I am prepared for what may happen a little bit better than the average guy but, I'm not any near prepared nor do I intend to prepare for some armageddon.  If the US dollar collapses so will most of the rest.  But before that happens you will see several other well know currencies deploy to money heaven first.  We are the best of the worse so to speak. 

While typing this I lost 4K on a stupid trade.  No one can pick tops and bottoms, I just proved it to myself once again.  Have two hours to get it back so ...... The End of rant.     

[sidewinder]

OH YC, I have no idea what would happen to solar panels in the event of a EMP event.  I suspect the resistors and such would get whacked in the transformers and grid tie it they are not sheilded as would most electronic things not kept in a faraday cage.  some things would work, others would not.  like Autos with certain types of ignition.  Keeping ignition parts for your favorite getaway vehicle not a bad idea and would require some research as to what parts are susceptible to damage. It would be ashamed to prepare and find you forgot the one part you needed to render the vehicle serviceable.

[MetalMeister]

OL,

I think sudden collapse is less likely as well but seems more likely with each passing month as countries like China and Russia are locking up commodity resources around the world and we are doing virtually nothing in that regard.  They are planning for the future while we are trying to keep our "future" afloat.  They already know our "future" is futile.  It's never worked in economic history and never will.

I think the failed Treasury auction idea is very plausible.  Let's say it does not happen until 5 years from now.  The US will still be the world's reserve currency and the Black Swan event will be just as big.  Just read this http://www.bloomberg.com/apps/news?pid=20601109&sid=aHfkhe8.C._8 about 1987 and all the money he made with those options.  In the Day The Dollar Died scenario making all that money will be meaningless and worth virtually nothing.

My attitude is plan for the worst and prayerfully and thankfully accept anything better.

I have come to disagree with his theory.  It may happen, IMHO, perhaps in ten years time and later.  Not in the immediate future (eg 2010, 2011).
.
.
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John Galt’s frictional story "The Day The Dollar Died" does occurs in the near future.

He says “The collapse of the dollar might just be an event measured in hours, not days as their control is not what it seems…..”

I think that if the USD did collapse suddenly within hours, then it would be due to a Black Swan event.  The mightily GS and other countries could not foresee it; and were powerless and not quick enough to stop it.   

[MetalMeister]

I wrote my response in my last post incorrectly.

Should have read:

 "I used to think sudden collapse is less likely as well but seems more likely with each passing month as countries like China and Russia are locking up commodity resources around the world and we are doing virtually nothing in that regard. "

The full story is that until I got into peak oil theory years ago I did not believe we would ever be less than the premier economic power in the world until forever.

The more I got into the oil supply and demand issues the more I started looking at long term US downfall and catastrophic scenarios.

Made sense that an oil related collapse would take place over a drawn out period of time but still fast enough that we could not possibly prepare for it.  Or a serious supply line issue like a terrorist bomb would drive prices to the moon.  I still believe the former is true and the best case scenario and that the latter is only a matter of time.

But with a currency collapse all bets seem to be off.  It only needs a few hours and the world's economy is in disaster and the only people that have anything are the people that produce something or have the natural resources to produce something.

We don't like Dines but I think this does get right into the heart of mass psychology.

I think these Treasury auctions go on and on and then just need a few of them to be lackluster and the cascading effect takes place all over the world.

That cascading effect is the culmination of reality, by the world, of an evil lurking right in front of their face all the time.

That evil is the USA, the largest debtor nation.

All around the world now economists speculate about getting out of US Treasuries.  I am convinced it just takes the right domino falling and suddenly they all fall and then it is too late to ever set them back up in the exact order and exact position that they were in previously.  

Ever.

Total loss of confidence.

The return on short term treasuries is zero right now.  We cannot maintain the interest payments on longer term treasuries without a robust economy.

The USA is just not a healthy living situation any more, IMHO.

[onlooker]

SW:

If the US dollar collapses so will most of the rest.  But before that happens you will see several other well know currencies deploy to money heaven first.  We are the best of the worse so to speak.

Venezuela has just recently devalued its currency. 

See:  Chavez Devalues Venezuela's Currency

http://online.wsj.com/article/SB126305109903923235.html

I know of a businessman in Venezuela who conducted his business only in USD, and not the local bolivar.  You can image that when the bolivar devalued, he thanked the heavens that he held only USD. 

~  ~  ~  ~ 

While typing this I lost 4K on a stupid trade.  No one can pick tops and bottoms, I just proved it to myself once again.  Have two hours to get it back so ...... The End of rant.

Hummm, posting and trading at the same time?  It sounds similar to texting and driving at the same time.

See: http://jeffreyhill.typepad.com/.a/6a00d8341d417153ef0120a61f8e5e970c-pi

There's going to be no more posting of long comments from me during NY trading hours.  Don’t want to see anymore losses like the 4K.   Yikes!

Sorry.  Really hope you got back your 4K and then some.   

[sidewinder]

Currency values around the world as they relate to the USD will defiantly be interesting.   These are the things that lead to war.  Guess our foray into the middle east just is not drumming up enough business. 

In reality, I have to wonder how long it would take for us to ramp up manufacturing to past levels.  Think the US is about 25% of the world GDP about now so those who sell to us really don't want us to break out that industrial can of "whop ass".  If the US begins to reclaim it's manufacturing capacity it will seriously mess up places like China and the so called BRIC.  We CAN circle the wagons and do just fine.  It would only take a China or Russian rattling industrial sabers to give the country the will power.  They really need to be careful of awakening the "sleeping Giant" again.  Frankly I wish we would get back to making things.  Everything in your house came from Asia somewhere, things we used to make right here.  The government should spend some of the money it waste to promote a return of manufacturing to the USA.  The boost in pride for the producers would do wonders for national pride, provide jobs  and maybe I would not have to talk to someone in Bombay when my router has a seizure. 

Would not take much for the rest of the world to want to "cut a deal".  We just need to decide who to put out of business first.  Shoes are easy to make.  Home appliances are a snap and the textile industry has a bunch of folks still living who know how to make cloth.  It would only take 5-10 years of determination. 

[MetalMeister]

I had no idea Venezuela had devalued their currency. 

Yikes on the 27-32% inflation rate!!

Did a little searching and came up with this related article:

http://seekingalpha.com/article/182339-currencies-can-evaporate-but-not-silver-or-gold?source=feed

Currencies Can Evaporate, But Not Silver or Gold

The speed with which currencies can lose their purchasing power is astonishing. For example, on Tuesday 3 February 2009 it took 109,759 tenge, the Kazakhstan currency, to purchase one ounce of gold. On Thursday 5 February 2009 it took 123,346. And that was small compared to the bolivar’s evaporation.

I know of a businessman in Venezuela who conducted his business only in USD, and not the local bolivar.  You can image that when the bolivar devalued, he thanked the heavens that he held only USD. 

[onlooker]

YC:

But with a currency collapse all bets seem to be off.  It only needs a few hours and the world's economy is in disaster and the only people that have anything are the people that produce something or have the natural resources to produce something.

I was totally caught off guard by yesterday surge in USD.    Should have read the following articles well in advance.  A currency surge like yesterday is a sign that all economies are still very unstable? 

See:  http://worldcurrencywatch.com/2009/12/30/2010-the-year-of-volatility/

See: 

In addition, the prevalent view is that we are in the throes of a V-shaped recession and that the world economic ‘regime’ is intact. But, if this not true and something fundamental has changed the economy will roll over into a W-shaped recession. If this is the case, further fuel will be added to the currency volatility as we enter into previously uncharted economic waters. The potential for “black swan” like currency movements would then be probable.

Ultimately, capital will vote with its currency ‘feet’ and, given the recent mobility of capital, no Central Bank will be able to control the flows, alone or in unison, against the tsunami of world capital moving in concert.

Savvy investors are already moving to put strategies in place to hedge against the corrosive effects of currency volatility or, indeed, to profit from it.

http://www.privateequitywire.co.uk/2009/12/21/27916/comment-currency-volatility-set-dramatic-increase

[sidewinder]

The time to have protection in place is before such a crisis because after it begins you will NOT get out of Dodge with large sums of anything if you can get out at all. 

Just go look at the video at the TSA again.  Every flight out of the country has a crew of customs folks inside the jetway looking at every passenger.  They just stand there profiling, and that is exactly what they are doing.  (that's why to me it's so stupid for the TSA NOT to profile.) Numerous times I have have passengers taken by these guys.  Each time they were right, the person had too much cash on their person (10K max unless declared) and were in violation of some serious laws.   Don't know what the disposition was because we left without them, just had to get the bag unloaded.