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Paul Volcker was chairman of the Federal Reserve from 1979-1987.  At a time when the nation needed a central bank head who had the guts to do what needed to be done. Volcker stepped in and answered the call.  He jacked rates to 20%+ and eliminated inflation from the economy.  He took heat.  A lot of heat.  And he didn't care.  He knew he was right and history has demonstrated he was.  He is a brilliant economist.  He is also a Republican, so his comments bear a great deal of weight with the other side of the aisle.

 The U.S. expansion appears on track. Europe and Japan may lack exuberance, but their economies are at least on the plus side. China and India -- with close to 40 percent of the world's population -- have sustained growth at rates that not so long ago would have seemed, if not impossible, highly improbable.

Yet, under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it.

To be sure, businesses have begun to rebuild their financial reserves. But in the space of a few years, the federal deficit has come to offset that source of national savings.

We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security. As a nation we are consuming and investing about 6 percent more than we are producing.

What holds it all together is a massive and growing flow of capital from abroad, running to more than $2 billion every working day, and growing. There is no sense of strain. As a nation we don't consciously borrow or beg. We aren't even offering attractive interest rates, nor do we have to offer our creditors protection against the risk of a declining dollar.

It's all quite comfortable for us. We fill our shops and our garages with goods from abroad, and the competition has been a powerful restraint on our internal prices. It's surely helped keep interest rates exceptionally low despite our vanishing savings and rapid growth.

And it's comfortable for our trading partners and for those supplying the capital. Some, such as China, depend heavily on our expanding domestic markets. And for the most part, the central banks of the emerging world have been willing to hold more and more dollars, which are, after all, the closest thing the world has to a truly international currency.

The difficulty is that this seemingly comfortable pattern can't go on indefinitely. I don't know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.

It's not that it is so difficult intellectually to set out a scenario for a "soft landing" and sustained growth. There is a wide area of agreement among establishment economists about a textbook pretty picture: China and other continental Asian economies should permit and encourage a substantial exchange rate appreciation against the dollar. Japan and Europe should work promptly and aggressively toward domestic stimulus and deal more effectively and speedily with structural obstacles to growth. And the United States, by some combination of measures, should forcibly increase its rate of internal saving, thereby reducing its import demand.

But can we, with any degree of confidence today, look forward to any one of these policies being put in place any time soon, much less a combination of all?

The answer is no. So I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. We had a taste of that in the stagflation of the 1970s -- a volatile and depressed dollar, inflationary pressures, a sudden increase in interest rates and a couple of big recessions.


Volcker has cleanly laid out the central problems we face.

First, homes are essentially giant ATM machines instead of investments.  Thanks to the plethora of home equity loan and refi advertisements, people are cashing in on their homes.  And they are either buying more "stuff" or paying down higher interest loans (credit cards) with lower paying loans.  Either way, they are not saving.  If they lose their jobs, they have no financial buffer to help them to their next job.

The 6% consumption and prodiction gap is another big issue.  We consume more than we make and other countries are paying the bill for us at the rate of 1.5 - 2 billion dollars per day.  I have seen an enormous amount of right-wing economists trying to justify this situation with all sorts of crazy theories.  Our own President and Secretary of the Treasury call the trade deficit a "sign that the US economy is growing faster than our trading partners."  Therefore it is a sign of strength.  

This is pure fantasy. There is no way a cycle of consumption being greater than production to continue forever.  We can justify it all we want; reality will eventually come crashing through our national wall of denial, forcing us to face reality.

Consumers will eventually run out of assets to collateralize or use to refinance so they can spend more.  At some point, the US will no longer be a great place to invest, as our creditors realize we can't pay them back, or our economy is not growing at an attractive rate.  Compounding this situation will be the lack of real wage growth when compared to inflation and necessary expenses.  Then there could be real problems.  

Originally posted to bonddad on Sun Apr 10, 2005 at 07:38 AM PDT.

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Comment Preferences

  •  Agree with you, but then again I always do (4.00)
    All of these issues have been tossed aside and ignored, yet they loom over all our economic issues.

    Add the cost of gas and what it will do to our spending habits, the fact that consumers are just about tapped out as far as spending goes, and there is a real problem that won't just "sneak" in it will explode.

    Though we need extensive work done to our home (and have more equity than what we owe) I refuse to take out another loan.  We have also paid off all revolving credit and put about 20 percent of our earnings into savings each month.  

    In addition when the new bankruptcy bill goes into effect that is sure to have an adverse effect on the economy as well.

    This "bubble" grows ever more dangerous, and the policies of this administration are fueling what, in my opinion, is going to be a very difficult economic time for almost all Americans in the near future.

    (add in the problems with health insurance, the number of companies that are defaulting on pension plans, and the overall flat wages for most Americans and the problem gets even worse.)

    "September 11, 2001, already a day of immeasurable tragedy, cannot be the day liberty perished in this country." Judge Gerald Tjoflat

    by SanJoseLady on Sun Apr 10, 2005 at 07:47:08 AM PDT

    •  Although we are not over the cliff (4.00)
      the economy continues to inch closer and closer.

      An no one is listening, because no one in this administration understands the language markets use to communicate.

      I stepped up on the platform, the man gave me the news, he said you must be joking son, where did you get those shoes-- Donald Fagen

      by bonddad on Sun Apr 10, 2005 at 09:39:04 AM PDT

      [ Parent ]

      •  We're not over the cliff... (none)
        ONLY because we don't know for sure where the cliff is exactly.  It amazes me that those of us who know the cliff is out there can't convince people who are fixated on their brand new shiny toys that the cliff even exists.

        How this can be a question in the minds of anyone I have no idea.

        Sorry, I have nothing else to add to this conversation.

        by DawnG on Sun Apr 10, 2005 at 09:43:15 AM PDT

        [ Parent ]

        •  I feel your pain (none)
          It's ridiculous how many people are involved in group denial.

          I stepped up on the platform, the man gave me the news, he said you must be joking son, where did you get those shoes-- Donald Fagen

          by bonddad on Sun Apr 10, 2005 at 10:02:21 AM PDT

          [ Parent ]

        •  The Wiley Coyote moment (4.00)
          Paul Krugman describes our economic situation thusly.  At some point, investors are going to look down and realize there is no solid ground holding up our economy, that it's all built on air.  (Our fiscal situation is already far beyond the point Argentina's was at when it's economy crashed.)  And we all know what happens to Mr. Coyote when he realizes he's run past the end of the cliff....

          "We can win elections only by standing up for what we believe." --Howard Dean

          by Jim in Chicago on Sun Apr 10, 2005 at 11:15:55 AM PDT

          [ Parent ]

        •  I actually think the toy-watchers (none)
          Are beginning to see a cliff, even if it's not the same steep dangerous cliff we're seeing. The sales of Explorers are down 25% in the first quarter and GM can't give its SUVs away.

          They see something there--high gas prices, high debt, something. It's probably too late, but it's a start.

          •  But the Decision (none)
            will never, ever, under any circumstances, be expressed as a recognition that the SUV is dangerous, gass guzzling energy wasting macho bullshit spreading stupidity on wheels or that they can't afford it.

            They just naturally prefer the investment value and brilliant styling of the Hyundai Getty.

            After all, they're Americans and Americans are never wrong, broke or stupid.


            At all.

            Under any circumstances.

            And if you think they'll apologise, you better get out those hell crampons for the day.

            "Till the Last Dog Dies"

            by Deep Dark on Sun Apr 10, 2005 at 07:31:03 PM PDT

            [ Parent ]

          •  It's really been a concern for GM here (none)
            The Arlington plant has had two-week shutdowns twice within less than a year, including one about a month ago. To compare, the plant went on overtime through 2002 and 2003 to meet the demand of SUVs.

            There's also been talk in the motor industry of "crossover SUVs"*, which are SUV bodies built on a car's frame instead of a truck. Guess whose leading this? The Japanese automakers.

            *That's the marketing gimmick, anyone over 25 knows them by their real name: "station wagons"

            Amateurs talk strategery, professionals talk logistics

            by Young Freud on Sun Apr 10, 2005 at 10:11:35 PM PDT

            [ Parent ]

        •  To quote HST (none)
          "The only people who really know where the edge is are those who have gone over it."
      •  Maybe, but (4.00)
        There are many times where it is clear that the markets and the economy use cartoon physics by not responding in a timely manner to clear evidence of problems and then all heading for the exits at once. It may be a week since someone has recommended Extraordinary Popular Delusions And The Madness Of Crowds by Charles MacKay, but it's hard not to recommend it in this context. The markets may be rational in the long run (cf Keynes), but they are very much a creature of the crowd in the short term.

        Republicans are poor stewards of America's government.

        by freelunch on Sun Apr 10, 2005 at 09:53:52 AM PDT

        [ Parent ]

      •  More than just a failure to communicate (none)
        It is not just that no one in the Administration knows how to communicate with the markets.  No one in the Administration understands financial markets, especially international markets.

        The lack of sophisticated economic knowledge in this Admin is appalling.  Bush knows nothing.  Snow knows nothing.  Cheney thinks that "deficits don't matter," pace Paul O'Neill.  Karl Rove (!) is in charge of economic policy.  While he may know politics, he doesn't know economics.  Witness the steel tariff that hurt consumers and did nothing for steel producers.  

        Bush won't listen to contrary information, much less contrary opinion.  It is slowly sinking in on Wall Street that this bus has no driver.  Too many think they can be the last off the bus before the crash, as in the stock market bubble and with the S&L crisis of a few years back.  Of course someone will be, but the bus will hit a vwery large crowd when it does crash.

        If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

        by Mimikatz on Sun Apr 10, 2005 at 12:39:20 PM PDT

        [ Parent ]

        •  They know exactly what they're doing. (4.00)
          If you view all administration policy as a means to a particular end this all makes sense. The goal is a redistribution of wealth on the most massive scale imaginable, the means is to bankrupt is as a nation and to bankrupt us individually.  

          These people aren't stupid, arrogant and evil yes, but stupid no (Bush is likely stupid but I digress).  They frame it as one thing and deliver a world that has no middle class.

          •  But why? (none)
            The main necessary constituent for a democratic government is a strong middle class.  Ditto for a stable country.  Democracies mean peace, which is good for business.

            Rove may admire the McKinley Era, but it is not a recipe for stability.  

            I suppose you will say that they don't really want democracy but eternal power, and need to get rid of the middle class to get that.  I refuse to believe that more than a relatively small number of people (mostly in the GOP) want this.  The rest are greeedy and have been willing to keep their mouths shut, but I see this changing.

            I am willing to bet we are somewhere very different in 2 years.

            If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

            by Mimikatz on Sun Apr 10, 2005 at 01:29:32 PM PDT

            [ Parent ]

            •  Because they are taking the wealth to the top.... (4.00)
              ...and keeping it in foreign accounts. If our economy crashes, then the wealthy people who support Bush and want it, the U.S. economy, to crash can then buy that much more of America at firesale prices. They don't give a shit about Democracy. Hell, China and the European Union will have some trouble but they'll stabilize and given their overseas investments these people will now have all the control over America they have been seeking ever since FDR got in their way. Just think what their profits will be then, as labor rates plummet in the U.S.

              The people backing Bush don't give a damn about Democracy and don't give a damn about capialism, at least as definited by Adam Smith. They're interested in power, not responsibility. The collapse of the middle class is a way of stealing any power the middle class has.

              Reason obeys itself; and ignorance submits to whatever is dictated to it. -Tom Paine

              by Alumbrados on Sun Apr 10, 2005 at 04:07:38 PM PDT

              [ Parent ]

              •  If they try this, they are dead (none)
                Do you really think most of the middle class is going to happily sit by as it sinks into poverty? People will be mad as hell and they will take down the rich with a vengence. How will the rich stop them? If your senario comes to pass conservatives will be out of power for a generation.

                Science without religion is lame. Religion without science is blind. Albert Einstein

                by DrSpike on Sun Apr 10, 2005 at 05:40:18 PM PDT

                [ Parent ]

                •  I hate to be a jerk, but... (4.00)
                  See Election 2004.

                  If you think most of the middle class (who are, by the way, the ones borrowing to buy) understand so trivial a distinction as national debt vs. trade deficit vs. budget deficit (I hear people conflate those three terms all the time), you have an admirable optimism.  I hope you're right, but as long as the People are distracted by the wavy hands of Terri Schiavo and Michael Jackson, I don't see that they're going to stand up and demand their slice of the increasingly horded pie.

                  Add to that the fact that this is a conscious movement to disable "big" government over the long run in order to bring about an era of necessarily small government (imagine a budget where 90% of expenditures are servicing interest on the national debt), and you begin to see that we're fighting a very nasty beast.  

                  How do we come back to power in 2008 or later and deal with a $10 trillion debt while maintaining policies that we think are important or necessary?  We either raise taxes or cut programs, and either way we're paraiahs.  

                  Now I realize that as a proportion of GDP, our debt load is nowhere near where it was after, say, WWII.  But I just don't see the so-called War on Terror (with all due respect to the men and women fighting terrorists today) yielding the same "Conquest Dividend" as that provided by the decimation of Europe and Japan in 1945.

                  •  Damnit.. (none)
                    "wavy hands tricks of Terri.." and "hoarded"
                  •  Dude, you were not a jerk at all (none)
                    I see your point. But we will all have to wait and see. Right now people can still get by. Do you really think when they lose their house they will not reevaluate?

                    Your switch to two earners was gradual and genrational. The difference in the coming economic problems is the time frame. Massive economic pain is coming, very suddenly. This is not going to be a sublte shift.

                    Science without religion is lame. Religion without science is blind. Albert Einstein

                    by DrSpike on Mon Apr 11, 2005 at 09:05:21 PM PDT

                    [ Parent ]

                •  They Have Been for 30+ Years (4.00)
                  and they're increasingly voting for it.

                  Family financial net worth hasn't grown in around 35 years but we've had to roughly double the number of workers per family to hold still, and surrendered a significant amount of free time and benefits at the same time.

                  But the public has a large reservoir of untapped fatalism to draw down before it runs out of fuel to power its faith in the national leadership.

                  By the time they get angry they'll have more control over the moon than over their nation.

                  We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy....--ML King, "Beyond Vietnam"

                  by Gooserock on Sun Apr 10, 2005 at 09:30:55 PM PDT

                  [ Parent ]

                •  uh..... (none)
                  yes I do.

                  Dead?  They won't be around when the this place goes down the tubes.

              •  Probably keeping it offshore too (none)
                I get the feeling that most very wealthy people - and companies - have a lot - most? - of their money in offshore accounts.
            •  Why? Because they can. (4.00)
              George keeps telling us that democracies mean peace, but we are at war.  No one seems to notice the contradiction. If Bush valued democracy he'd see to it that the elections in the USA were so squeaky clean that no one would doubt the result, instead the administration works hard to implement voting systems that instill no confidence, but that's not the point.

              The point is that nothing can be learned about this administration by listening to their words. In life and in politics true motivation is betrayed by actions alone.  Just as the reality that the War in Iraq was planned before Bush became president, the destruction of the middle class is the policy of the administration.   They honestly believe that an elite class deserves most wealth because that elite is better than the rest of us. The elitist view is more common historically than democracy.

              Look at whose interests have been protected so far.  There has not been a single legislative initiative that benefits the middle class at the expense of the wealthy. Every single policy directive has the exact opposite effect, that isn't a coincidence, and they aren't stupid.

          •  No that's not what they are doing... (none)
            And, yes, they really are just stupid.  These policies don't benefit any class in the United States.  Even the wealthy suffer if our economy tanks.  

            In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

            by Asak on Sun Apr 10, 2005 at 07:20:50 PM PDT

            [ Parent ]

      •  Markets do not hold party lines. n/t (none)

        When the fox preaches The Passion, farmer watch your geese.

        by reform dem on Sun Apr 10, 2005 at 04:22:27 PM PDT

        [ Parent ]

    •  When interest rates get high enough (none)
      this is when the sh*t will hit the fan.  House values will stop rising and some people will get in trouble.  This will really start hurting people when the new bankruptcy law kicks in.  They won't be able to clear their debts.

      What color are your pajamas?

      by Unstable Isotope on Sun Apr 10, 2005 at 10:03:22 AM PDT

      [ Parent ]

      •  Bankruptcy law is the trigger (none)
        The new bankruptcy law is exactly what the banks need to get themselves out of the hole they created by lowering interest rates to unsustainable levels in order to cash in on the housing and credit booms.  

        Their bad business practices, on both mortgages and credit cards, have put them in an untenable financial position.  They learned the lesson of the 1980's very well, however, and courtesy of their carefully-crafted bankruptcy bill, when they raise rates this time, they will get paid when the unstable market they created collapses.

        Unsuspecting American consumers, carrying massive debt loads, will be legally required to service their creditors before they cover their own basic needs - just like 3rd world countries are required to drain their coffers into the IMF and World Bank ahead of social spending.

        And courtesy of the ingrained sense of Darwinian economics among the self-deluded American public, the outcry will come in the form of lashing out against the scapegoat du jour - liberals and gays - instead of the government that converted our economic ecosystem from a lush rainforest to a barren desert. ... At least until some external power (a cooperative economic alliance of Asia, Russia, and the EU, perhaps?) imposes a painful antidote to the neo-con Kool-aid by ceasing to fund the smoking rubble of our remaining economy.

        Beware the everyday brutality of the averted gaze.
        ePluribus Media - Donate!

        by mataliandy on Sun Apr 10, 2005 at 09:54:52 PM PDT

        [ Parent ]

    •  We're doing the same thing. (none)
      We  have home equity probably worth three times our debt.  Last year I spent a bundle on a landscaping project that is costing probably three times what was projected.  Stop!  I'm not borrowing anymore and we are paying down -- also at a rate of aboug 20 percent of my after-tax income.  I figure, after the crash, it will be easier to get backhoe operators cheap to do the remaining work.  And I want to be as debt free as we can be when the crash comes.  As to the other renovations.  Nada!  It's time to pull back and hopefully get through the coming storm without too much loss.
    •  Same boat (none)
      We are not entirely out of debt but moving quickly and single-mindedly in that direction.  Meanwhile, people around us (like the director of our son's school, hungry for additional annual giving contributions) seem to feel no compunction about urging us to dip into our home equity, which we have no intention of doing.  I'm heavily into "batten down the hatches" mode, trying to figure out a place to put a victory garden when the sh*t hits and hoping I've mastered enough of the womanly arts (e.g., mending, darning, canning) to get my family through through whatever comes next.  Worst case scenario is we're suckers for not leveraging our home.  I'd be delighted if that happened.  Yes, my yard's an eyesore (surrounded by a high fence so no one has to look at it but us!) and we seem to have more holes than roof left at this point, but we're making do rather than living large.  I'm glad to hear I'm not the only cautious one.
    •  Volcker is an S.O.B (4.00)
      I agree pretty much with everything he is quoted as saying in this post, but the characterization of him  as "doing the job that had to be done" completely disregards the fact that Fed policies under Volcker were the begining of a systematic assault on poor and working class Americans and the dismantling of the middle-class. They constituted an enormous transfer of wealth and power from the bottom of society to the bankers and CEOs to whom Volcker was ultimately accountable. They marked the decisive end of the New Deal and the beginning of the Reagan Revolution. Did they end double-digit inflation? Yes, but by forcing a massive reorganization of American capitalism  that, among other things, saw the complete hollowing out of our manufacturing sector and the decimation of public infrastructure with all of the dreadful social consequences we have come to accept as normal.

      "Tell no lies. Claim no easy victories." -- Amilcar Cabral

      by Christopher Day on Sun Apr 10, 2005 at 06:05:59 PM PDT

      [ Parent ]

      •  What Volcker Said (none)
        The standard of living of the average American has to decline. I don't think you can escape that.

        -- Paul Volcker, quoted in the New York Times, October 18, 1979

        This kind of thing is why I cringe whenever people say "Democrats don't understand the economy." Bullshit. People like Volcker who pretend like there is (was) no alternative to 20% interest rates, 11% unemployment, an overvalued dollar, and the deindustrialization of the Northeast and Midwest as an anti-inflation policy are just doing the bidding of the wealthy elite, pure and simple.

        A more balanced policy that included moderate interest rate increases, tax increases to balance the budget, and wage and price controls could have done the job with far less social cost.

        •  Well, it may be sad, but it's true (none)
          That quote is 100% accurate.  With a global economy and global competition, the standard of living of the average American is going to decline.  Republican policies may not help matters, but I don't think even the best policy can change the underlying situation.  

          In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

          by Asak on Sun Apr 10, 2005 at 07:24:57 PM PDT

          [ Parent ]

        •  No, it doesn't have to be true (none)
          The wealthy elite wants you to believe it -- it means more income and wealth for them.

          We can maintain our living standards as long as we (1) invest in education, R&D, physical and communications infrastructure, (2) share the wealth through appropriate corporate governance, labor market and social welfare policies; and (3) ensure that as productivity in other nations rises, their wages rise along with them.

          Of course, at the moment we are doing none of these things in the right amounts (that would require higher taxes, more spending, and an increased willingness to regulate the private sector economy), but that doesn't mean we couldn't with the right leadership, pressed to do these things by progressive social movements.

          •  I Don't See How This Can Work Any Longer (none)
            invest in education

            What good does this do when increasing amounts of education-dependent work are going offshore or being made redundant by technology-driven mergers and efficiencies?

            ensure that as productivity in other nations rises, their wages rise

            Well I think we've long ago passed the point where what we're really talking about is a world government. After all, the owners have already built their portion of it.

            We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy....--ML King, "Beyond Vietnam"

            by Gooserock on Sun Apr 10, 2005 at 09:35:43 PM PDT

            [ Parent ]

            •  It can still work with the right institutions (none)
              People have been bitching that technological change is going to take away all the jobs for at least 200 years, since the first spinning machines in England, and it hasn't happened yet. Maybe it will now, but I'm not convinced.

              As for outsourcing and offshoring, again it's not really a problem if there are international labor standards so that wages rise in line with productivity, so that we avoid the "excess capacity" that drives unemployment up and wages down.

              It doesn't require a world government, but it will require a revamped set of "Bretton Woods" type institutions to regulate the international economy.

            •  Innovation (none)
              Investing in education enhances the probability that at least some innovation will occur in the US, creating markets and bringing home the bacon.

              "Force always attracts those of low morality." -- Albert Einstein

              by eyeswideopen on Mon Apr 11, 2005 at 01:18:56 AM PDT

              [ Parent ]

            •  what's even more important... (none)
              is that our society becomes increasingly more conformist as time goes on.  Education without the ability to have the nads to question orthodoxy will not lead to breakthrough innovations.  What you have is rote learning which is death to uncoventional breakthrough creating minds.
          •  *That* is naive. (none)
            With oil production topped out globally already, we're going to see 50% unemployment in twenty years. If we suddenly invested in real rail transit and real alternative energy right now, we'd maybe see 30% unemployment instead. This country would have to practice voluntary simplicity for decades to survive intact.
  •  When it's over... (4.00)
    ...will be when OPEC oil ceases to be denominated in US dollars.

    Not before or after, but when that happens.

    Until then, there is a put option on the dollar, and we are willing to pay in thousands (perhaps millions) of lives and billions (perhaps trillions) of dollars to keep that contract.

    Defend your freedom, one threatened judge at a time.

    by cskendrick on Sun Apr 10, 2005 at 07:49:06 AM PDT

    •  I agree... (none)
      ...I'm no macro economic wiz, but it appears that, instead of a gold standard, we have a virtual 'oil standard' due to the use of US $ being used to purchase oil, which keeps the dollar and the US economy somewhat 'stable'. For a while.

      Otherwise, our debts (federal and trade) would have created an Argentinian scenario.

    •  It won't happen suddenly (none)
      OPEC and other holders of US$ are slowly diversifying.  I don't have the number readily at hand, but I think that OPEC sells only 61% of their oil exports for dollars.

      But your basic point is accurate--once the world realizes that OPEC, China, Japan, etc. are no longer supporting the US$, we're in trouble.  

      I think of it as sitting on a tree limb while others are slowly sawing away at it.  For a while you can say, "See?  It makes no difference.  I haven't fallen."  But eventually you reach the tipping point, the branch gives way, and you wind up planted head-down in the lawn with a tree limb in a very uncomfortable part of your anatomy.

      •  From an old diary on the subject: (none)
        "Members of the Organisation of Petroleum Exporting Countries have cut the proportion of deposits held in dollars from 75 per cent to 61.5 per cent in the past three years."

        That's about 5 percent per year. If that trend continues, which it may very well not, would mean that by 2008 OPEC would cut the proportion of thier deposits in US dollars to 45%.
        If the trend continued further at that rate, by 2011 it would 30%.

        The GOP and the Elephant are both Introduced Species

        by roboton on Sun Apr 10, 2005 at 10:28:16 AM PDT

        [ Parent ]

    •  I hear this argument from time to time (none)
      and I just don't get it.

      Lets assume that we wake up tomorrow and OPEC only accepts Euros.

      What has changed?

      The oil spot market is a capital flow.

      The market that matters, what currency OPEC bankers hold their reserves in, is a stock.

      As long as they continue to hold dollar reserves at the same percentage, does it really matter whether OPEC oil is dominated in dollars, euros, pounds or oz of gold?

      And if they changed reserves and the dollar did take a hit, now everthing they want to buy or invest in that is in dollars, is now cheaper, making it all the more attractive and US exports more competitive.  How does this make Europe better off and the US worse off. We get a little more inflation but Europe gets a lot less growth.

      What am I missing?

      •  What you are missing (none)
        Is that both flow and stock components are involved here. The flow component props up the dollar in the short term, while the stock component in the long term. It isn't the reserve currency that matters as much as it is the place where investment ends up, the reserve currency is subsidiary to where wealth is, ultimately, banked.

        And OPEC gets its oil gotten gains here in the US.

        •  Interesting, but it doesn't answer my question (none)
          Europe imports a larger share of their oil needs than the US does, which means that OPECs oil gotten gains come from there as well and to a greater degree.

          As to where invetment ends up, that would seem to favor the US as well. Growth in the US is greater, labor and enviro laws easier, taxation of capital lower than Europe.

          So tell me again why having OPEC demand only Euros is going to hurt the dollar and the US economy in either the short or long run.

          •  Economics 101 (none)
            "So tell me again why having OPEC demand only Euros is going to hurt the dollar and the US economy in either the short or long run."

              For someone busy lecturing people, you sure are missing the most basic economic concepts.
               It's real simple Daisy - supply and demand.
            Oil not being sold in dollars means less demand for dollars. Less demand for dollars means lower value for the dollar.
               What's more, if the #1 commodity in the world is no longer sold in dollars then other commodities would also stop being sold in dollars.

               Hence, no reason to have large supplies of dollars. Hence, the dollar is no longer the world's reserve currency.

            "The sun is not yellow, it's chicken." -Dylan

            by gjohnsit on Sun Apr 10, 2005 at 03:35:24 PM PDT

            [ Parent ]

            •  again, you are confusing stocks with flows (none)
              Money has two purposes. It can be used as a medium of exchange and it can be used as a store of value.

              The value of the dollar is not dependent on its use as a medium of exchange.

              The value of the dollar is dependent on who is willing to hold it as a store of value.

              Only if the oil producers followed up their shift to Euros as a medium of exchange with a shift in their reserves, would the change have any effect on the value of the dollar.

              •  The flaw in fiat (none)
                "Money has two purposes. It can be used as a medium of exchange and it can be used as a store of value."

                  Hence the #1 problem with the dollar. Fiat money is losing value all the time. A 1970 dollar has lost nearly 80% of its value.
                   That is the #1 reason why gold is superior to fiat currency. Generation after generation, gold's value varies very little.

                  What's more, with the dollar losing its reserve currency status, it will drop a great deal. Your point is that they have to run to some currency, right? And what fiat currency is better than the dollar? Wrong. What they will run to is to something that won't lose value. After all, why accept a certain level of losses when you don't have to accept ANY losses? So investors will run to commodities, other currencies (temporarily), and gold.

                "The sun is not yellow, it's chicken." -Dylan

                by gjohnsit on Mon Apr 11, 2005 at 08:53:48 AM PDT

                [ Parent ]

                •  We are not going back to gold (none)
                  The global economy is just too large.  Central bank after central bank has slowly been selling off their gold reserves for the past 20 years.

                  Like it or not, the global economy operates on a dollar standard. While some people here seem convinced that the dollar is losing its reserve currency status, just wait for the next international financial crisis and watch where all the scared money runs to.

                  Yes the dollar has lost value, so has gold since it peaked in 1980. What's your point?

              •  One other thing (none)
                "Only if the oil producers followed up their shift to Euros as a medium of exchange with a shift in their reserves, would the change have any effect on the value of the dollar."

                  If they shift their medium of exchange, why the Hell would they not shift their reserves? They have to shift their reserves. They would have no choice. That would be the currency flowing into their country. That would be the currency they would need to conduct transactions.

                "The sun is not yellow, it's chicken." -Dylan

                by gjohnsit on Mon Apr 11, 2005 at 08:55:57 AM PDT

                [ Parent ]

                •  Why would they have to shift their reserves? (none)
                  The Euro would be the currency they would be collecting for their oil, it woul dnot have to be the currency of their reserves.  

                  They have always collected in dollars, are all of their reserves currently in dollars. These represent two very different financial decisions.

      •  I think it's the sheer quantity (none)
        US dollars held in reserve by every country that imports oil would get dumped.  Outright, full-blown, no holds barred...dumped.
        For argument's sake assume 20 million bpd of oil goes to the Euro.
        At $50/barrel that's 1 billion US dollars that have to be replaced with Euros...every day.  ie...$1 billion SOLD.
        The value of the dollar would get crushed.  It would not be a case of "a little more inflation".
        A 1 billion/day dumping of dollars would invite panic dollar dumping and shorting.  
        The initial sell-off would be enormous since nobody is going to think one day at a time.  They'll just dump as many dollars as they can as fast as they can.
        I think the currency markets would shut down under the stress of extreme order imbalance and when they did open back up, the gap down would decimate anyone with even a modest position in US dollars.

        The waves carry up little bits of knowledge and deposit them on the shore, and before you know it you've got Finland. Or whatever.

        by dougr on Sun Apr 10, 2005 at 01:03:15 PM PDT

        [ Parent ]

        •  Might it happen anyway? (none)
          You know, I half wonder if that's not how the crash will start. Not China or Japan, not OPEC, but a bunch of smaller countries reading the writing on the wall and opting for getting out while the getting is good. They're not exposed the same way China, Japan, Thailand, Korea, etc are. They might just succeed in dumping their dollars without many people noticing. Then their neighbor will do the same. And their neighbor.

          And once someone notices, THEN Asia gets out, all in one day.

        •  Why would the rest of the world dump dollars? (none)
          A billion dollar transaction may sound like a lot but the foreign currency markets trade trillions of dollars of currency every single day.  Even if you multiply your example by a factor of 10 what you are suggesting is a drop in the proverbial bucket. It would hardly make a ripple.

          China, Japan, India and Brazil can not allow the dollar to 'get crushed'. They not only have too much invested in the US, China does not want to revalue their currency against the dollar nor does Japan want the dollar weaker against the yen. Same for India and Brazil.

          Since the first of the year, the dollar has actually appreciated modestly.

          Again, to go back to my original question, why does OPEC shifting from dollars to Euros to price their oil really matter.

          •  It's not a billion a day (none)
            The forward looking repercussions would entail positioning for the long term.  As I said, nobody is going to think in one day at a time terms.

            The initial dumping could very well entail trillions of dollars.

            The waves carry up little bits of knowledge and deposit them on the shore, and before you know it you've got Finland. Or whatever.

            by dougr on Sun Apr 10, 2005 at 01:21:31 PM PDT

            [ Parent ]

          •  It's not the dumping (none)
            It's the fact that as BondDad says, and as everyone should drill into his/her head, the United States consumes 6 percent more than it produces.  This is not a steady state.  It's not the dumping of the dollars that's the problem (though it will be at some point) it's that it is going to get harder and harder to get foreigners to sell stuff to us for pieces of paper that are patently losing their expected value.

            When you talk to Wingnuts on this issue, just ask them if they think the United States can indefinitely consume 6 percent more than it consumes.  Note also that the excess is not investment, which might be sustainable for a fairly long time, but public and private consumption, which yields no future return in productivity to pay back the debt.  This is intergenerational robbery, pure and simple.

          •  China... can not allow hte dollar to get crushed (none)
            It's not that they can do anything about it.  The capital transactions are far larger than GNPs, and when the tide comes in, in it comes.  iirc George Soros became extremely rich for several reasons one of which being that he figured out that iirc the pound and mark were about to roll over and shift, so he positioned himself to take advantage of this, basically buying the currencies cheap at the expense of the two governments and then trading back after the price shift.

            Note that transactions are far larger than net flows.  Vast amounts of money exchange hands short term, but the sum of these huge movements is the relatively smaller net capial imbalance.

            With respect to the Republican 'our economy is stronger'", actually, Americans are buying foreign goods so their economies are stronger than ours.  Their economy can make more goods than their consumers buy.  Our economy makes less than our people buy, because our people are through a chain going into debt to their government.

            •  China May Not Have Any Choice (none)
              China's economy may be up and coming, but China isn't omnipotent.  China may not choose to torpedo BWII, but China may not have a choice.  

              The Angry Bear has a great, concise analysis of the chances there'll be a soft landing for the U.S. and world economies.  Karsh really tries to come up with an optimistic scenario but, ultimately, has to admit there's faint chance a soft landing will actually occur.

              And make no mistake about it, there will be some sort of landing and fairly soon.

              This aggression will not stand, man

              by kaleidescope on Sun Apr 10, 2005 at 10:26:26 PM PDT

              [ Parent ]

          •  loss of confidence (none)
            If, or when, holders of dollars decide the continuation of holding dollars is a mug's game they will dump 'em.  Since Bush took office the dollar has fallen, in purchasing power parity, by 30%.  That's around $105 - $110 billion loss for Japan, alone.  The shift, should it happen, from dollars to euros stems from the loss of PPP.  

            This (pdf):

            from the Commerzbank tells it all.

            Commodity prices in general, not just oil, are rising faster in dollar than in euros, when both are considered as Units of Account.  This means businessess who use the dollar as their UofA have to spend more, relatively speaking, to buy the same quantity of the commodity versus businesses using the euro as their UofA.  This, in turn, requires US businesses to charge more for a comparable product than their overseas competitors.  

            Now lets add ...

            As has already been stated, the dollar is semi-backed by oil.  It is also, of course, backed by the production of goods and services (GNP)in the US.  A shift would eliminate one of the backings of the dollar resulting in only one and we already know the US is consuming 6% more than it produces.  This means the US economy is being driven by the willingness of the rest of the world to accept IOU's instead of cold hard cash for their products and services.  

            Which is what, pretty much, has been happening since Bush took office.  At some point, though, the merry-go-round stops and the bills have to be paid.
            Either the bills have to be paid by producing more than consumption or foreclosure.  The danger is foreign holders will decide to rid themselves of the risk of further lose by moving their holdings from debt investments to equity investments.  

            If that happened, small companies like IBM, GE, Proctor & Gamble, ChaseManhattan Bank, and etc. would be going on the auction block.  As the bucks come a'repatriating home.  

            A collapse of confidence is by now means assured but if it happens the wishes of foreign countries won't matter a tinker's dam.  Those who hold off will get rogered, big time, through loss of PPP, those who try to stop it will get run over, and those who cash out will win ... big time.

            "...[one] must still have Chaos in oneself to be able to give birth to a dancing star." Nietzsche

            by ATinNM on Sun Apr 10, 2005 at 04:32:49 PM PDT

            [ Parent ]

            •  Why does the merry go round (none)
              have to stop?

              And what is so wrong about foreign ownership of US based firms, I believe that process is already going on.

              Yes the US is consuming more than it produces. This is not the first time it has happened. For most of the past 50 years, we have run a trade deficit, consuming more than we produced. What's changed to make this unsustainable.

  •  GOP Economic Solution = Chapter 11 (4.00)
    All anyone with half a brain has to do is go to the NYSE and take a look at the DOW performance for a good indicator.  You can only blame 9-11 for so long.  The jobs reports at best have been mixed to more in favor or disappointing.  I love how everytime it inches up a couple thousands, the economy is robust, every time it comes in under estimates, its seasonal adjustments....please.
    You factor in oil prices which arent going anywhere but up and this isnt good.  

    Oil is high and after all our involvement in the MidEast, we still havent learned that energy independence is in our national security interest.  This President and Congress have done nothing.   The automakers are already beginning to feel the heat with their seasons earnings reports.  

    Like it or not corporate malfeasance seems to be more rampant than even I had hoped for.  How can a company claim 4 billion in assets it doesnt have?  Shell claimed 400 million it didnt have.  Giants banks are posing a problem too.  A 15 dollar fee here and there?
    It adds up.  

    The more laughable items come when you listen to  these Bushanistas telling Dick, Joe, Jane, and Shirley to save save save.  
    If this Congress were given a credit card when they entered office, they'd have maxed out 10 cards already and are preaching fiscal responsibility to us?

    The only rational I got is that they must all have a nasty smack habit like Rush....

    •  The stock market is a terrible indicator of (none)
      the economy's performance.

      There is an old economist joke that says the stock market has predicted 9 of the last 4 recessions.

      Was the stock market right in March 2000 when Nasdaq was briefly above 5000? The answer is clearly no.

      Stock markets are subject to manias and panics in the short run.

      So it is going to take more than half a brain to figure out what is going on with the economy.

      We will never be energy independent. Nor should we. The cost would be prohibitive. Politicians who say this are just pandering to American jingoism and energy company windfall profits.

      Corporate malfeasance for the moment is sharply on the decline. All of the investigations going on now are a residual of very bad corporate behavior that took place mostly in the 1990s. Sarbannes Oxley has put the fear of god in the hearts of most corporate execs for the moment. Real bad behavior usually doesn't start to show up until the end of a business cycle and we are still a long way from that point.

      I agree with you on the overspending of Congress, its really disgraceful.

      •  If you think corporate malfeasance is over (none)
        look at, for example, the insurance company AIG.  Both Spitzer and the SEC are investigating it for helping other companies manipulate their earnings and for manipulating their own.  The 30-year Chairman and CEO, a "highly respected" member of the Wall Street community, has been fired.  Other executives have been terminated for taking the 5th.

        Other insurance companies seem to have done similar things.  A number of non-insurance companies may have had help from insurance companies in manipulating their earnings.

        The investigations have only begun.  But there is NO evidence that corporate scandals have disappeared

      •  Why can't we be energy independent? (none)
        That's one of the dumbest comments I've ever read.  We have a large supply of oil here in the United States.  There's not really any good reason we could not be energy independent.  In fact, it would be fairly easy to envision a system where we were.  All we need are hybrid and electric vehicles and power based on nuclear and renewables.  Right there we'd be energy independent.  

        Would it take a lot of money to switch over?  Yes.  But as oil prices start rising we're going to start making the switch.  

        In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

        by Asak on Sun Apr 10, 2005 at 07:30:18 PM PDT

        [ Parent ]

        •  Not dumb, just good economics (none)
          There are a lot of good reasons why we will not, can not and shouls not be energy independent. All of the alternatives that you mention would not make up for the oil we import.  And all of them would cost more to significantly more than the oil we import.

          What you are advocating is protectionism. By allowing your jingoism to over come common sense economics, your demand for energy independence will mean a substantially lower standard of living for everyone with the exception of the well protected energy producers.

      •  OK, quit abusing the poor pooch (none)
        So it is going to take more than half a brain to figure out what is going on with the economy.

        You might want to return to this when. . . you're a bit more functional. You only got a small chunk of it right.

        We will never be energy independent.

        Are you talking about technological feasibility? If that's the basis of your opinion, you need to find better sources for your info than GOP talking heads. Yes, they're wrong about that, too.

        Haven't you read any of the energy diaries around here?

        Nor should we. The cost would be prohibitive.

        The International Energy Agency was quoting a $16,000,000,000,000 price tag for the world infrastructure required to stay with fossil fuel oil. Yes, that's 12 zeros. I regard that as prohibitive. However, that was before the IEA "got religion" on "peak oil" a few days ago. Now, they're encouraging alternative fuel development.

        No matter how well you like the repressive theocracy in Saudi Arabia, we are still going to have to stop giving them money for oil because it isn't all that long before they don't have any oil left to sell us.

        We need that "impossible" energy independence solution in place long before this happens, and everyone else is going to need new energy sources,too. There is a reason other than military that Iran is building a nuclear capability. They don't want their lights to go out, either.

        Politicians who say this are just pandering to American jingoism

        I heard that argument in college in an econ class over a generation ago, and the instructor was wrong then, too. Ever heard of "global warming"? If jingoism increases the impetus to switch over to renewable fuels that are safer for the environment as well as the economy, I'll be happy to encourage it.

        and energy company windfall profits.

        What part of $55/barrel for imported oil and record oil industry profits don't you get? You're telling us that higher oil prices and more expensive gas at the pump will reduce their profits? Who do you think collects the wholesale and retail markups on energy, Santa Claus?

        Looking for intelligent energy policy alternatives? Try here.

        by alizard on Sun Apr 10, 2005 at 08:00:51 PM PDT

        [ Parent ]

        •  Again, for the slow learners in the group (none)
          We will never be energy independent, nor should we.

          It has to do with the benefits from trade. Read a little international trade 101 and you will come across the idea of comparative advantage. As vile as the Saudi entity is, they will always have a comparative advantage in oil, over us and just about everyone else. We trade with them, not because we like them or approve of their policies, but because it is in our best economic interests to do so.

          Some of you have just stumbled on the idea of peak oil and act like you are the first people to think about this concept. Peak oil is an old idea that has been around the oil industry a long time. A lot of people have used the concept in the past to warn of an oil crisis and they have all been wrong. The first forecast that the world was running our of oil was made in 1875 by John Newberry who was then the chief geologist for the state of Ohio. In 1973, the US State Dept published a white paper on the oil crisis, stating that this time the wolf was really here. In 1979, Jimmy Carter warned that the oil wells were drying up all over the world. All of these end of the oil world as we know predictions have been wrong. Oil reserves and output has continued to rise because oil reserves are a function of price and technology. A higher price and continued improvement in extraction technology produce higher reserves for some time to come.

          Yes I am sure from a technological perspective we could achieve energy independence, but it would result in a substantial drop in our standard of living and a substantial increase in the already obscene profits of the energy industry.  To advocate such a dramtic increase in oil industry profits at the expense of the rest of the country strikes me as a very Republican thing to do.

          I am not saying we should not develop alternative sources of energy. What I am saying is that even with all of these alternatives, we will still be importing oil.

          •  why not just admit your ignorance (none)
            and do something about it?

            Yes I am sure from a technological perspective we could achieve energy independence, but it would result in a substantial drop in our standard of living and a substantial increase in the already obscene profits of the energy industry.  To advocate such a dramtic increase in oil industry profits at the expense of the rest of the country strikes me as a very Republican thing to do.

            You appear to be pulling the substantiation for your. . . peculiar ideas out of your asshole. I'm not going to ask you for sources at this point or just why you are the only person who thinks that oil industry profits would jump if Middle East oil were replaced with domestic fuel from renewable sources, a person who doesn't understand wholesale and retail markups in the energy context has absolutely nothing to say worth hearing on energy.

            Are you sure you wouldn't be more comfortable on places where people are expected to do that? You might look good on FreeRepublic, why don't you go there?

            Looking for intelligent energy policy alternatives? Try here.

            by alizard on Mon Apr 11, 2005 at 01:44:54 PM PDT

            [ Parent ]

            •  Why is it that when some people have (none)
              totally lost an argument, they have to stoop to vulgarity to make their point.

              Your level of ignorance really knows no depths.

              The cost of energy goes up as we try to become more energy independent because the producers in the Middle East can pump their oil for a few dollars a barrel if they need to. That's their marginal cost.

              The marginal cost of the more exotic sources of energy you are talking about will cost anywhere from $60 a barrel to several hundred.

              You do the math Einstein. When you replace something cheap with something expense and do it in a big way, you reduce your standard of living.

              Wake up and study a little international trade theory before you go calling people ignorant and showing what a low class slug you are by using profanity to sound tough.

      •  Energy Independence (none)
        If individuals can become energy independent already (like me), as we move more people into urban areas that will just get easier.

        In single family dwellings, solar alone gives you everything you need. Since we have hydros and wind available as well, the high-rises are covered. You just don't spin the hydros during the day, you let the sun do it for you, and you dynamically change load.

      •  Energy independence (none)
        If we had spent $100 billion on solar and wind subsidies rather than Iraq -- and mind you this is the same amount we spent subsidizing nuclear in the '50s (thus it would be well over a trillion in today's dollars) -- we would indeed be energy independent, and with lots of incentive to make and drive EVs.  (BTW, there's a new battery for hybrid cars coming out in 2006 that charge fully in 10 minutes, about the same time we spend at the pump, so this is perfectly reasonable).  

        "Force always attracts those of low morality." -- Albert Einstein

        by eyeswideopen on Mon Apr 11, 2005 at 01:40:32 AM PDT

        [ Parent ]

        •  the price of freedom (none)
          If we had spent $100 billion on solar and wind subsidies rather than Iraq -- and mind you this is the same amount we spent subsidizing nuclear in the '50s (thus it would be well over a trillion in today's dollars)

          Actually, we'll be lucky if a complete conversion to renewable / alterative / green power sources only costs a trillion of today's dollars. Mike Briggs of the University of New Hampshire estimates the cost of Handling transportation via renewable biofuel at $308B capital costs. Replacing coal is... possible but... we'll be lucky if the solution costs hundreds of billions instead of thousands of billions.

          This is a fraction of the $16 trillion price the IEA quoted us on staying with fossil fuel, back when they were still telling us that it was possible.

          If you're serious about seeing the problem fixed, don't be afraid of very big money numbers. The money has to be spent because the alternatives are worse. At this point, we can do this by only spending dollars. Wait much longer and we'll be paying a much higher price in human lives than we already are.

          Looking for intelligent energy policy alternatives? Try here.

          by alizard on Mon Apr 11, 2005 at 03:08:56 AM PDT

          [ Parent ]

          •  Too true. (none)
            It would be cheap at the price.  I once did a quickie calculation of what would happen if the $9 billion W wanted to invest in nuclear were diverted to simply purchasing CF and LED bulbs, and this was truly eye-opening.  It came out to saving over $40 billion in energy costs and the output of an equivalent of 43 nuke plants.

            It really needs to be seen as investment, as it will return many, many times the upfront costs, just like the New Deal infrastructure works did.  

            A back-of-the-envelope calculation on just buying solar panels outright (wholesale prices) and installing them on homes, and windmills on farms will give an eye-opening result.

            My brother recently put up $20K worth of panels (retail) and found that he was producing 3x the power he needed for his family of 4 and thus is supplying his neighbors too, as well as supplying the grid.  Decentralized power is the way and the path.

            "Force always attracts those of low morality." -- Albert Einstein

            by eyeswideopen on Mon Apr 11, 2005 at 07:40:17 PM PDT

            [ Parent ]

      •  economics 101 (none)
        I agree that its not a bona fide indicator but if you take a look at the DOW performance since Bush took office, even negating 9-11, we still arent near the levels when he it bubble, call it 9-11 but i think 5-6 years is enough time to expect some progress in the markets ands its been disappointing.  Hell even while Walmart has continued to make profits its performance hasnt been stellar either.  I think market analysts should be unemployed based on their predictions.

        Tax cuts may be good but when are people going to realize that when times are tight people dont spend the money you give back to them...especially if gas prices are high, college tuitions are rising, and healthcare..not to mention that this federal government has forced many states, even red ones to push local taxes up while claiming they push through federal cuts.  The cuts are worthless if my property taxes are increasing in parallel.

        As far as energy is concerned...all I gotta say is that every time a fart occurs in the vicinity of a MidEast pipeline, we are taken by the balls at the gaspump.  If ever a time presented itself for easing that burden, after all the war, after all the terror, its now.

  •  My opinion on US dollar (4.00)
    Theoritically, US dollar should have already collapsed at this point of time due to the so called 'twin deficits'.

    I believe what prevents this from happening is simply because there is no alternative currency available for global investors. Euro is a choice, Japanese Yen is another, but there should be at least another alternative currency,  or another foreign currency based asset class. It should be free traded Chinese Yuan, or 'Asian Dollar', but we don't have it  and are not going to have it any time soon. That's the reason I don't believe US dollar will plummet anytime soon as a lot of economists predict.

    But that can change in the long run. China's domestic market is developing at a breath-taking pace. If China's economy is becoming less dependent on U.S., We may see the end of US dollar era.

    •  I agree. (none)
      And if we trust the market, sooner or later somebody WILL offer a credible altrnative to US dollar.

      There is simply too much profit to be made to dump dollar and adopt more credible currency. It maybe a basket, it mabe a novel form of portofolio.

      whatever it is, it won't be US dollar.

      •  the euro (none)
        is only 6 years old, but the euro bond market is already bigger than the dollar bond market.
        any reserve movement away from any currency (not just the dollar) goes to the euro.

        It is there and ir is happening.

        4 years ago: 4 dollars = 5 euros
        now 4 dollars = 3 euros.

        The world is taking notice.

        in the long run, we're all dead (Keynes)

        by Jerome a Paris on Sun Apr 10, 2005 at 10:13:19 AM PDT

        [ Parent ]

        •  euro is (none)
          no doubt a credible alternative. But for dollar to collapse, there should be another credible alternative.

          Euro alone is not sufficient, the rising euro is hurting European economy big time.

          •  Actually no (none)
            Eventhough the Euro has risen 40% against the dollar in recent years, America's trade deficit with the Euro community has actually grown.

               Where the dollar is going to fall is against Asian currencies.

            "The sun is not yellow, it's chicken." -Dylan

            by gjohnsit on Sun Apr 10, 2005 at 11:43:44 AM PDT

            [ Parent ]

        •  Would be interesting to hear (none)
          a European viewpoint on the prospect for long-term trends of the Euro given the recent softening of the Stability and Growth Pact, and the recent polls showing that the EU constitution may not be supported by French voters.

          The first of these two leading indicators suggests that the Euro may undero rampant inflation in the future.

          The second suggests that the European Union concept may be in for a significant rework (e.g. keep Turkey out, let Ukraine and Russia in)--or may even collapse entirely.

          While long term dollar-versus-euro trends depend strongly on what you call "long term," since the beginning of this year the Euro hasn't been looking all that great. "The U.S. currency is up 4.8 percent against the euro and 5.5 percent against the yen this year."

          Why would one think that the Euro is a better bet than the dollar at this point?

          •  asdf (none)
            1. click on my name for my last diary on the topic of the French vote on the EU Constitution, which talks about the euro

            2. don't listen to Russians writing about the EU. I have yet to meet a Russian who understands the EU (and I have worked 10 years in and out of Russia)

            3)3 month numbers give little information. The pressure is still to go down. If it cannot do so against the Asian currencies, it will do it against the euro.

            in the long run, we're all dead (Keynes)

            by Jerome a Paris on Sun Apr 10, 2005 at 12:07:31 PM PDT

            [ Parent ]

          •  My take (none)
            Is that one thing will make the euro the standard currency in the future.

            The European economy is not growing very quickly. But for the most part, its growth is sustainable.

            That's not true, obviously, of the US. But it's also not true of China. Their banking system is also a mess, they're living off credit in a different but still important way, and they're going to have a tough time finding something to fuel this economy. Plus, even Chinese ministers admit their economy is so inefficient and so environmentally problematic that they cannot sustain it in its current form. To say nothing of the rural-urban problems in China.

            Which leaves you Japan (which doesn't have much more going for it). I don't see any other SUSTAINABLE economic system in the medium term.

        •  Hey, J.... (none)
             ...I did a proxy half-pimp of one of your diaries downthread, just so you know :)


             ("'Proxy half-pimp', is that some kind of new dive?"
               "Yes, but no one ever does it."
              "Why's that?"
              "You have to wear a furry purple Speedo with green trim." )

        •  Are foreigners denominating their debt in dollars? (none)
          It would seem like a sensible thing to do right now.  The exchange risk to an uncovered short position in dollars would seem to be minimal at this point.
    •  There already is an alternative to the US$$$$.... (none)
      ...and it's call a gold standard. It's way overdue. We don't need any new freaking fiat currency.
      •  Shadow Currency (none)
        Gold is too rare to be a useful currency in today's economy, but it is a useful shadow currency. After you take out the very significant speculative spikes, gold tends to trade at the inflation adjusted value it had when it was money. That is helpful because it allows those who are concerned about a weakness in currencies to buy a store of value that tends to maintain itself over time, despite the speculative problems.

        Republicans are poor stewards of America's government.

        by freelunch on Sun Apr 10, 2005 at 09:46:00 AM PDT

        [ Parent ]

        •  There is another precious metal (none)
          It's called silver and is 16 times more abundant than gold.
             Throughout history gold was the money of the rich and silver was the money of the public.
             It worked well and it can work again.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Sun Apr 10, 2005 at 11:41:26 AM PDT

          [ Parent ]

      •  yes we do need fiat currencies (none)
        tying economic activity and growth to finding a mineral you get out of the ground is a receipe for deflation and depression. It also allocates unnessary resouces and capital to gold mining, which is a notoriously enviromental unfriendly activity.

        Mind you, I'm no fan of central banks and fiat currencies.

        I just do not think gold is a viable alternative to fiat currencies.

        Freedom does not march.

        by ex republican on Sun Apr 10, 2005 at 09:49:49 AM PDT

        [ Parent ]

        •  Ignoring 4,000 years of economic history (none)
          Gold has remained money for 4,000 years. America became the loan economic superpower with gold-backed currency. For more than a century, from the early 1800's to the early 1900's, there was no such thing as inflation or deflation. The value of money remained static while the wealth of the nation grew.
              Now 34 years of fiat currency later, we are now an economic light-weight that is heavily indebted to the rest of the world.
            And you seem to think that this is a good thing.

            The fact is that fiat currency has an average lifespan of about 60 years. Fiat currency is doomed, and when it dies precious metals will take its place again.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Sun Apr 10, 2005 at 11:39:03 AM PDT

          [ Parent ]

          •  Gold as currency? (none)
            Gold is too heavy to carry in your pocket.  Next currency option please.

            I believe that unarmed truth and unconditional love will have the final word in reality. ~ Martin Luther King, Jr.

            by Duncanini on Sun Apr 10, 2005 at 12:34:56 PM PDT

            [ Parent ]

            •  More Uninformed Bullshit ... (4.00)
              Please, people ... These are facts we're dealing with here, and easily verifiable facts at that, not opinion ...

              1. People carried gold coin in their pockets for centuries, if not millenia, before gold "lost favor" as a circulating medium.

                In particular, American citizens carried it in their pockets from 1795 until 1933, when the private ownership of gold by American citiznes was, for all practical purposes, outlawed.

              2. A one ounce gold coin, formerly known as a "double eagle," contains one troy ounce (approximately 31.1 grams) of gold, and weighs 1.0909 troy ounces (approximately 33.9 grams); gold coins are typically composed of 91.67% gold, the remainder being largely composed of silver. A double eagle then, containing one troy ounce of gold, weighs about 1.2 imperial ounces.

              3. With gold currently trading for about $425 per troy ounce, one could carry over $400 in one's pocket with a single 1.2 ounce coin.

              My wallet weighs five and one-half (5.5) ounces; I could, for the same weight, carry over $2300 in my pocket.

              Further, anybody who carries more than perhaps a couple of hundred bucks on his or her person at any one time has his or head firmly implanted up his or her ass ... Unless, that is, one is on one's way to purchase a car or other expensive item for cash.

              Note, please, that I am not necessarily advocating a return to circulating gold as an exchange medium; I am simply trying to kick yet more uninformed bullshit out of the way.

              Next question, please?

              •  I should point out... (none)
                ... some simple facts about value per weight. I worked up the numbers some time ago, but I suppose I can dust them off and bring them up to date.

                Currently, a $20 bill is more valuable than its equivalent weight in gold. Indeed, a 20 euro, pound, australian, canadian or new zealand note are all more valuable, gram-for-gram.

                $1,000,000 in $100 bills, excluding ties or a bag/briefcase, will weigh 10kg. 10kg is 321.5 Troy Oz... at $428.80/troy.oz, 10kg of gold will be worth  just a bit under $140,000. $100 bills are worth over 7x their weight in gold.

                The only advantage gold would have (if it could be considered such) is in volume. $1,000,000 in $100 bills would is 10,000 bills. The average banknote is 2.61" high, 6.14" wide, and .0043" thick, or roughly 1.129 cubic centimeters (cc/cm^3). A stack of 10,000 bills would occupy around 11,300cc or 11.3l of space. 100% pure gold has a molecular density of 19.3g/cc. In the same amount of space, you could contain around 217940 grams (217.94kg, or around 7007 troy.oz) of gold, for a value of around $3million USD.

                3x the value per volume, but you're unlikely to find someone who can carry a 220kg briefcase of gold worth 3mil (assuming you can find a container that can hold that sort of weight). It should be quite easy to find someone who can carry a 10kg briefcase of $100 bills worth 1mil, however. The hardy crew in "Three Kings" would have made out far better by snatching up suitcases full of greenbacks, if they'd had the chance. That $30mil in bullion they were carting around karbala was worth around $340/troy.oz, so it would have weighed in at around 88,250troy.oz, or 2750kg!

                None of this has any bearing as to relative merits in terms of stability, etc. Just to point out some physical realities and problems by actually transporting metals around for transactions as opposed to nice, light paper that basically any value could be inscribed on. (a $1,000 banknote may well make a comeback, and become 70x more valuable than its weight in gold for instance).

                People went to paper because metal is relatively hard to store, transport, mine and trade. I'd suggest that should fiat currencies be dropped, you'd still be dealing with paper, just that those papers would be certificates worth an equivalent weight in your metal of choice (ie. pound-sterling).

                •  Why are we talking about paper? (none)
                  A credit card is even smaller than a paper bill (it might weigh a little more), but it can have unlimited money attached to it.  The actual money is just stored digitally in the form of protons and electrons.  

                  Hell no, we're not going to go back to gold.  And paper is also on its way out.  Whatever happens and however our currency ends up being backed, we're not going to carry around tons of gold.  

                  In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

                  by Asak on Sun Apr 10, 2005 at 07:37:33 PM PDT

                  [ Parent ]

                  •  Credit Cards in Troubled Times (none)
                    I refer you to Margaret Atwood's book "The Handmaid's Tale."  In it, the U.S. religious right take over government.  Power has its roots in economic power.  They negate all women's power by voiding all electronic transactions.  This book is the scariest horror book I have ever read.
              •  Levity (none)
                Seriously, I was only kidding about Gold being too heavy to carry.  

                The subject matter (Crapped out Economy) has had me in a constant state of anxiety, compiled with severe depression since Dec. 2000 and again in Nov. 2004.

                People walking around with gold bars sticking out of their pants pockets gave me a small moment of levity.

                How about we just resort to I.O.U.'s?  I have a bunch of those.


                I believe that unarmed truth and unconditional love will have the final word in reality. ~ Martin Luther King, Jr.

                by Duncanini on Mon Apr 11, 2005 at 11:29:39 AM PDT

                [ Parent ]

            •  I agree (none)
              Besides, gold is too useful, as an inert metal, in applications such as medicine to waste as an abstract representation of value.

              "Force always attracts those of low morality." -- Albert Einstein

              by eyeswideopen on Mon Apr 11, 2005 at 01:52:53 AM PDT

              [ Parent ]

          •  Oh look it is a gold bug (none)
            1. Silver, not gold, has been money for 4000 years. The first gold coins were not until silver had been mony for 1500 years.

            2. Gold remained money for a long time for the same reason slavery and serfdom remained legal. It worked in a pre-industrial society. This experience is as useful to the present as Roman property law.

            3. Gold is not organically related to the present economic system. The monetary basis must be related to the monetary system or it will be a fiat currency. Fiat works both ways: telling people they can't accept something as money is just as much fiat as telling people they must. All gold standards have been required to enforce a monopoly of gold based notes and coinage.

            4. Gold does not increase at the rate of economic growth. Creating a rental currency is anti-capitalist.
            •  Oh look, another uninformed fiat person (none)
                It's amazing just how much disinformation these fiat currency people spread around.

              #1) The first currency coins were made in the Ionian society around c. 500 BC. They were bothgold and silver mixed together.
                 Strike one.

              #2) The "Golden Age" of gold-backed currency did NOT happen in pre-industrial society. It happened in the era between the early 1870's to 1913.
                 Strike two.

              #3) There are so many things wrong with your "point" here that I would waste hours trying to fix it. Gold is organic of money as they come. Why? Because the free-market chose gold and silver as money. They chose it on every continent on Earth independent of each other. Fiat currencies were forced upon the markets.
                 And gold standards do NOT enforce monopolies. They never have. Fiat currency, OTOH, is monopolistic by definition.
                  So I'm going to cut this short and tell you that you have no clue as to how gold-backed currencies work.
                Strike three.

              #4) What difference does it make that gold doesn't increase at the government's rigged number of GDP? The current system has the government expanding the monetary base at many times the rate of the inflated GDP growth number. I don't hear you having a problem with that, eventhough the problems with it are obvious. What's more, the goverment will always do this with fiat currencies. And who says gold-backed currencies are "anti-capitalist" or "rental"? Those are strawmen arguments that aren't even very clear.
                  Strike four.

              "The sun is not yellow, it's chicken." -Dylan

              by gjohnsit on Sun Apr 10, 2005 at 02:28:40 PM PDT

              [ Parent ]

              •  Oh come on (none)
                "these fiat people", you sound like a creationist going on about darwinists.

                There is no fundamental necessity to go back on the gold standard.  

                All value is predicated on demand meaning that if the government tells people that the little piece of paper that they have in their wallet is worth something and they believe it, then it in fact is worth something.

                A floating fiat currency is a good thing because it is more accurate at pricing the currency.  Right now a lot of governments are holding onto Dollars, selling them off somewhat but in general keeping them, which distorts their value.  

                The problem right now is the fact that our currency has not dropped enough to head off the massive crash that might be in the future.  

                Truly liquid markets are quick to correct issues in the market.  If the dollar where at a much lower value today our current account deficit would start to contract.  

                Imported goods would be more expensive here, possibly driving up inflation but not absolutly, but our exported goods would be cheaper else where.  

                I want the currency to drop against all currencies now, interest rates to shoot up and the pain to occur now.  Because if this goes on for another couple of years the crash is going to be horrendus and it might take the world years to get over it.

                Our virtues are usually only our vices in disguise. La Rochefoucauld

                by Parmenides on Sun Apr 10, 2005 at 04:04:33 PM PDT

                [ Parent ]

                •  Perfect Peg (none)
                  Gold bugs are as goofy as fundies.  and argue as vehemently.

                  I personally have no more real use for a lump of gold than a pile of printed paper.  Maybe less.  It's all fiat.

                  At least with the paper you can wipe your posterior......

                  •  No clue (none)
                    "I personally have no more real use for a lump of gold than a pile of printed paper.  Maybe less.  It's all fiat."

                      You not only have no idea what the history of currency is, you have no idea what the word "fiat" is.
                       I don't have the time to educate you.

                    "The sun is not yellow, it's chicken." -Dylan

                    by gjohnsit on Mon Apr 11, 2005 at 09:06:23 AM PDT

                    [ Parent ]

                •  Oh come on back at ya' (none)
                  "There is no fundamental necessity to go back on the gold standard."

                   True, as long as you can find a better solution that isn't doomed to failure. Gold (and silver) has never failed. Fiat has failed every single time.

                  "All value is predicated on demand meaning that if the government tells people that the little piece of paper that they have in their wallet is worth something and they believe it, then it in fact is worth something."

                    And yet fiat currencies have failed every single time. Eventhough governments have always told their people that those scraps of paper is all they need. So maybe your premise needs work.

                  "A floating fiat currency is a good thing because it is more accurate at pricing the currency."

                    Now you are showing your ignorance of economics. The true price of a currency is whatever someone will pay for it. That has always been true for gold, or any other currency.

                  "Imported goods would be more expensive here, possibly driving up inflation but not absolutly... "

                    Actually they would go up absolutely. And they will. You can count on it.

                  "The sun is not yellow, it's chicken." -Dylan

                  by gjohnsit on Mon Apr 11, 2005 at 09:05:00 AM PDT

                  [ Parent ]

              •  Gold is itself a fiat currency (none)
                The irony of all you crazy goldbugs lecturing people about fiat currencies is that gold itself is a fiat currency! It has virtually no intrinsic value. Its market price bobs up and down not because of true supply and demand concerns but because of fear and greed. Holy crap, the terrorists took out New York -- gold is up $20 an ounce.

                If the dollar is such a bogus currency, why are you measuring the merits of gold by discussing its meteoric rise in dollars ?? Why not tell me that "Gold rose from six barrels of oil in 1999 to eight barrels of oil in 2004" ?

                Thing is I actually agree that the dollar is headed on a multiyear slide precisely because of the twin deficits that are only going to worsen. (Bush, i.e. Cheney, is already on record pissing on budgetary deficit concerns, and as Dobbs et al. point out, we don't manufacture anything anymore to get our trade balance in line when the dollar weakens.) But if you're going to propose something from your coin collection as an alternative, at least pick silver or platinum so you'll be talking about something with some industrial uses -- actual demand, actual value. In other words, buy some Euros.

                Gold's value is based on psychological factors only. It's more of a 'greater fool' investment than anything you can buy on the Nasdaq.

                •  And Yet More Uninformed Bullshit! (none)
                  Man, you guys have been shoveling it all day, and you really ought to be ashamed of yourselves. You speak volumes of yourselves when you talk out of your asses ... and yet more when you blow smoke out of 'em ...

                  "It has virtually no intrinsic value."

                  "But if you're going to propose something from your coin collection ... at least pick ... something with some industrial uses -- actual demand, actual value."

                  Gold is the only metal which is found in its metallic form, i.e. nuggets. This made it uniquely valuable in pre-industrial societies, i.e., throughout most of human history.

                  Gold is, I believe, the only metal so ductile it can be worked with a hammer at room temperature, and if I'm wrong about this, it's one of the very few. The ancient Greeks and Egyptians accomplished miracles with gold; it has been valued by artisans for millenia for its properties. There is no other material that can be worked as gold can.

                  Gold does not tarnish nor corrode, not even over millenia. It is damn near impossible to dissolve ... not completely impossible, but you really don't want to have much to do with the substances used to do so ... mercury, cyanide, or aqua regia (literally, "royal water").

                  Its engineering uses are many ...

                  There is no better conductor of electricity (excepting, of course, superconductors) than gold.

                  Its complete lack of corrosion and its unsurpassed conductivity make it ideally suited as a coating for electrical connectors. Look inside your computer sometime and see just how how much gold it contains.

                  Gold is one of the few materials known that reflect infrared.

                  It is uniquely suited to dental uses.

                  It is entirely hypoallergenic, making it ideally suited for jewelry ... and eyeglass frames.

                  And I am certain that if I wanted to spend the time, I could a list as long as your arm of other uses for it, many of them for which there is no other material that would do quite as well as does gold.

                  In other words, gold is unsurpassed, in many, many applications as an engineering material and as an artistic medium.

                  And, I suspect, it would work just fine as an ass-stopper the next time you feel inclined to blow more smoke out of yours.

                  •  You can't argue with logic like that -- (none)
                    JESUS CHRIST! Now we're supposed to jettison the Dollar, the Euro, the Yen and the Pound, all because of the bling that King Tut was flashing. You've got to be shitting me! JEWELRY as a proxy for value?? You're fine. Let me know when we're done with the transition to an ivory- and jade-based economy.

                    The ancient Greeks and Egyptians accomplished miracles with gold; it has been valued by artisans for millenia for its properties...

                    Think you mean 'millennia.' Again, I don't think a necklace constitutes a 'miracle,' nor do I accept the notions that 'artisans' dictate value. Jackson Pollack bartering a painting for beer in a movie doesn't count.

                    But that's okay -- it's good to hear that gold occurs in natural BALLS or 'nuggets', which made it especially valuable in pre-industrial society. Hey, that's helpful! Now all we have to do is revert to a pre-industrial society and we're fine. I'm having a heart attack, give me some leeches. There won't be any energy crisis now that we'll all be lighting our homes with whale oil.

                    I'm not saying that gold is literally worthless, i.e. useless. I don't dispute that Gold does not tarnish nor corrode, not even over millenia, though I request that you quit spelling it with one 'n.'

                    My point is that the market value of gold is not closely related to its intrinsic value. If you want to argue this point, please explain why the price of gold shot up to $800+ an ounce in 1980. I don't think it was because people were suddenly making more fillings, eyeglass frames, bracelets, and ass-stoppers.

                    You're right about one thing though -- I should, absolutely, be ashamed of myself.

                    •  Troll (none)
                      "JESUS CHRIST! Now we're supposed to jettison the Dollar, the Euro, the Yen and the Pound, all because of the bling that King Tut was flashing. You've got to be shitting me!"

                        Which is, of course, not anything close to what he said.
                         And because of this naked strawman, you obviously don't have any intention of debating this point honestly.
                         Thanks for your time.

                      "The sun is not yellow, it's chicken." -Dylan

                      by gjohnsit on Mon Apr 11, 2005 at 09:19:05 AM PDT

                      [ Parent ]

                    •  I'm Afraid ... (none)
                      That you've misrepresented me, and willfully at that; I can't say that you've misquoted me, for I never said that which you imply that I said.

                      Although I admit, without reservation, that I did indeed misspell "millennia." Shame on me ...

                      As for the Vergina Wreath, I've seen it, up close and personal. It's little short of miraculous; it seems to be, even upon close inspection, gilded leaves, down to the veins. I wouldn't be surprised if there were no one alive who could duplicate this work, at least using the methods employed at the time.

                      My point, of course, which you've also misrepresented, was to correct your gross misstatement, which was that gold "has virtually no intrinsic value," and your statement by implication that it has no "industrial uses." That's just plain wrong, and it pains me to see gross untruths promulgated here, of all places.

                      Nor did I, in any manner whatsoever, state or imply, in the post to which you replied or in any other post, that I felt that any nation should base its currency upon gold or replace its circulating currency with gold, and you know that was well as do I.

                      In fact, I've made no statements whatosever concerning currencies; I've merely corrected certain misstatements and untruths promulagated here by you and others, in an effort to set the record straight, and in an effort to see to it that those reading these staements don't walk away having been misinformed.

                      Your statements are, again, a complete and willful misrepresentation and distortion of virtually everything I wrote earlier, and so complete a misrpresentation and distortion that I'm tempted to ask you if you, perhaps, ghost write any of Ann Coulter's columns.

                      I'll note, in closing that you did indeed imply, if not state, that "gold is literally worthless" ... Once again, I quote your own words, "[Gold] has virtually no intrinsic value," and "[If] you're going to propose ... an alternative ... at least pick ... something with some industrial uses -- actual demand, actual value."

                      You've even misreprented your own statements, denied that you said what you did.

                      For shame.

                  •  Infared? (none)
                    "Gold is one of the few materials known that reflect infrared."

                      I didn't know that.

                    "The sun is not yellow, it's chicken." -Dylan

                    by gjohnsit on Mon Apr 11, 2005 at 09:16:50 AM PDT

                    [ Parent ]

              •  Incorrect (none)
                Gold was not regarded as anything other than pretty in the Americas before Columbus, et al.  Seashells were used as currency as well as direct bartering.

                No, it was the gold nuts who invaded, lied, cheated, stole, and killed in abundance to acquire the gold of the Aztecs, Incas, et al. for the abstract representation of wealth.

                "Force always attracts those of low morality." -- Albert Einstein

                by eyeswideopen on Mon Apr 11, 2005 at 01:59:54 AM PDT

                [ Parent ]

                •  Bullsh*t (none)
                  "Gold was not regarded as anything other than pretty in the Americas before Columbus, et al.  Seashells were used as currency as well as direct bartering."

                    The only reason they didn't use gold was because there was no precious metals in the New World. There wasn't even any paper money to use as currency. That's why they used seashells and bartered.

                    As as for your comments about "the gold nuts" who killed all those people. Perhaps you can explain to me how all the people who have been killed over paper money are superior?
                     If you can't, then you are obviously denouncing the wrong thing.

                  "The sun is not yellow, it's chicken." -Dylan

                  by gjohnsit on Mon Apr 11, 2005 at 09:22:45 AM PDT

                  [ Parent ]

                  •  "No Precious Metals In The New World?!" (none)
                    As much as I appreciate your smackdown of Redbat, I'm now going to correct your own gross misstatement.

                    The New World, to put it bluntly, had gold coming out its ass.

                    The Aztecs and the Mayans were systematically looted by the Spanish of pretty every peck of gold they had; the Spanish took tons of the stuff back to Europe.

                    If my memory serves me well, Columbus saw people wearing gold as jewlery on his very first voyage to the Americas.

                    Gold was found in Georgia perhaps as early as 1819; by 1830 in excess of three hundred ounces a day were being taken. The Georgia gold fields were so rich that the Treasury establihed a mint in Dahlonega in 1838.

                    And then, of course, there are the California gold fields.

                    And those in Colorado, as well.

                    These are ... or were, as the case may be ... two of the richest fields ever found; the wealth that they spewed forth is legendary.

                    From what little I know of Native American history, I'll add that it would seem the peoples of North America, however, had little use for the stuff. The peoples south of North America, though, used it in pretty fair quantity as an artistic medium.

                    •  True, but not in this case (none)
                      "The New World, to put it bluntly, had gold coming out its ass."

                        Of course, but not near the early American settlements. The example given was Jamestown. There was no gold in the eastern, lower 48. All the major gold discoveries were west of the Mississippi.

                         On a related note, long before the Constitution was written gold silver had returned to being the currency of choice.
                          In fact, our American Constitution specifically states:

                      Section. 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

                       Obviously our founding fathers specifically demanded that there be no fiat currency in this country.

                      "The sun is not yellow, it's chicken." -Dylan

                      by gjohnsit on Mon Apr 11, 2005 at 11:57:17 AM PDT

                      [ Parent ]

                      •  True, But ... (none)
                        Given the population of the United States at the time, the Georgia strike wasn't exactly insignificant.

                        And, of course ... as noted ... the California strike of 1848, a good twelve years prior to the Civil War, and a mere seventy-two years after the Declaration of Independnce, was ... huge.

                        As was, and as also noted, the Colorado strike.

                        And I couldn't agree with you more concerning the intentions of the framers of the Constitution regarding fiat currency.

                        Article I, "Legislative Branch," Section 8, "Powers granted to Congress," clearly states in Paragraph 5 that:

                        [The Congress shall have Power] ... To coin Money[.]

                        And states in Paragraph 6 that:

                        [The Congress shall have Power] ... To provide for the Punishment of counterfeiting the ... current Coin of the United States

                        And, as you noted, in Article I, Section 10, "Powers Prohibited to the States," Paragraph 1 just as unequivocally states that:

                        No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts

                        It may be noted that Framers knew full of what they wrote; they had recently endured a disastrous experiement with fiat currency, the Continental. Their choice and use of the verb "to coin," the noun "coin," and the adjectives "gold" and "silver" was quite clearly deliberate, and just as clearly intended to preclude a repeat of what might be called the "Continental Experiment."

                        Had they intended that paper or fiat currency be introduced into circulation, they would surely have authorized Congress to "print" money. They chose not to do so. It may also be noted that among the framers were both Alexander Hamiltion and Robt. Morris, at least one of whom was a financial genius.

                        The "Continental Experiment," in fact, was so disastrous that the phrase "Not worth a Continental" became a part of the American lexicon, and remains so to this day.

                        It may also be noted that nowhere in the Constitution or its amendments is there authorization for the printing of money, and surely no authorization for the printing of money backed by nothing but the "full faith and credit of the United States."

                        Given Mr. Bush's public remarks of last week that the Treasury bonds held by the Social Security Trust Fund ... the same bonds that the Social Security Administration states are "backed by the full faith and credit of the U. S. Government" ... are "just IOUs" that "that the government [can] take away," obligations ... in this case, Federal Reserve Notes ... "backed by the full faith and credit of the U. S. Government" are starting to look one whole hell of a lot like fiat money indeed, what?

      •  Wrong (none)
        Gold is losing its attraction as a modern investment vehicle. Although  it's safe to say gold price generally moves in  opposite direction to US dollar.

        It's hard to imagine Chinese or Indian or whatever foreign investors would put significant chunk of their assets into gold. First of all, it's not liquid. Second, gold itself can not generate required return. It sure can preserve capital when US dollar is declining.

        Gold's price had not moved at all until the steady decline of US dollar beginning 1-2 years ago. It's simply not an alternative investment vehicle.

        •  India (none)
          For some reason I had the impression that one of the reasons that India had been so slow to become economically modern was a result of their love affair with gold as a store of value. I don't recall where I got this idea from, but if anyone has heard of it, I'd love to learn more.

          Republicans are poor stewards of America's government.

          by freelunch on Sun Apr 10, 2005 at 09:57:48 AM PDT

          [ Parent ]

        •  Ummmm, hello???!!! (4.00)
          First of all, it's liquid as hell; at least as liquid as Federal Reserve Notes.

          Second of all, gold began a steady rise in early 2001, from about $255 to its current price of about $427.

          See this page at Kitco; at the bottom of the page you'll find "Multi Year Gold." Select the checkbox labeled "2000-2005" and then hit the button labeled "View Charts."

          I would know ... In 2001 I gave a family member a 2001 Eagle as a graduation gift; it cost me about $280.

          A couple of weeks later, I happened upon a so-called "antique store" that had a 1987 proof Eagle for sale for about the same price, $285. I bought it on the spot as (for those of who don't know much about numismatics) proof coins are always worth more than circulation (or, in the case of Eagles, bullion) coins; in this case about a hundred dollars more. Caveat emptor, and seller beware, as well ... having bought that 2001 Eagle two weeks beforehand, I knew what gold was worth at the time, and I knew that the proof coin was worth at least a hundred dollars more than what they were asking for it. it was like finding a C note lying at my feet on the sidewalk ...

          I still have it. Last time I looked, it was worth twice what I paid for it.

          Nice return on an investment in an asset that "[has]" not moved at all" until a year or two ago.

          In fact, a year after I bought it, in June of 2002, gold was at about $320.

          A year later, in June of 2003, it was at about $360.

          A year after that, in June of 2004, it was at about $385.

          It's currently trading for about $425.

          Peculiar behavior for an asset that "[has] not moved at all until ... 1-2 years ago," what?

          My only regret is that I didn't put $20,000 or so into gold back then; had I, it would be worth over $30,000 today.

          All I can add to this is to ask you, in the future, not to post arrant bullshit here; it only serves to confuse those don't know the subject on which you're misinforming them, or who don't have the time to check your alleged "facts."

          •  Gold is liquid? (none)
            Try taking it down to the local 7/11 to buy your next soda there and see how liquid it is.

            You can sell it, for DOLLARS. But as a store of value, gold has had a terrible record over the past 25 years.

            The best way to make a million dollars on gold over the past 25 years was to start with $10 million.

            •  Arbitrary time frames (none)
              Gold is extremely liquid. It always has been.
              Your comparison to the 7/11 is false for a very simple reason: They have to accept paper dollars. It's the law.
                  Free markets, OTOH, have always chosen precious metals. Fiat currencies tend to end with illiquidity.

                And as your 25 year frame, you are measuring it from an arbitrary time frame. If you said 35 years then gold would have been a great investment. If you had said 4 years then gold would have been a great investment.

              "The sun is not yellow, it's chicken." -Dylan

              by gjohnsit on Sun Apr 10, 2005 at 02:32:30 PM PDT

              [ Parent ]

        •  You are mistaken (none)
          More gold is bought by India than any other nation in the world.
             Meanwhile in China, owning gold just got legal for the first time in 50 years. The Chinese government is encouraging their citizens to buy gold.

            Gold has fallen out of favor in the industrialized world, but that's out of ignorance and arrogance. A multi-decade bull run in stocks and bonds has convinced people that there is little risk from paper.
              Ignorant investors who don't value wealth presevation are about to get a nasty shock. Nothing goes up forever, and arrogant American investors are about to learn the value of wealth preservation.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Sun Apr 10, 2005 at 11:28:06 AM PDT

          [ Parent ]

          •  Gold falling out of favor (none)
            isn't because of ignorance and arrogance, it is because Gold no longer has an organic relationship to economies, and therefore is not a good proxy for the economy as a whole. Gold on an inflation adjusted basis does not tend to trade for the same level of wealth as when it was a monetary metal - if it did, it would trade at several thousand dollars to the ounce. Inflation is only one of the two twin risks of wealth, the other is expansion. Gold does not track expansion and therefore is a poor vehicle for hedging against expansion.

            The gold standard of 1871-1915 was the product of particular circumsntances and is not likely to be reintroduced. The Bretton-Woods use of gold, as a flow rather than a stock, is also not practical under current realities.

            While gold has its uses - it is an excellent hedge against government stupidity - it is not "as liquid" as Federal Reserve notes, nor does it earn interest, but in fact, costs interest.

            Gold falling out of favor is like silver falling out of favor as a monetary metal (and for most of human history silver, not gold, was the primary monetary metal), is based on rather sound economic developments.

            •  You're exactly right. (none)
              Gold itself can not generate return. The perceived return is because of the weakness in US dollar.
              •  Not quite right (none)
                Gold does not generate a return and never will. That much is true. But it also has no risk attached to it and is immune to inflation.
                    Why is that? Because it has no debt attached to it, unlike fiat currencies. Just like anything in a free market, more risk requires more return.
                   For instance, a 1970 dollar has lost almost 80% of its value. I should hope to God that a fiat investment during that time would produce a return. Otherwise fiat currencies would be suicide.
                    Meanwhile the price of gold has gone from $35 an ounce to $425 an ounce. Does this mean that gold is producing a return on investment? No. It means that dollars have become more worthless. That's all. Gold retains its value.

                "The sun is not yellow, it's chicken." -Dylan

                by gjohnsit on Sun Apr 10, 2005 at 02:40:56 PM PDT

                [ Parent ]

            •  Gold's days are about to return (none)
              This "organic relationship" argument stinks of vagueness. It reminds me of the "dynamic economy" argument I here from people who tell me that everything is OK with the economy. It's vague and means nothing.

                You are correct that gold should be priced much higher than it is now, but that isn't the fault of gold. It's because of the legacy of gold production expansion from the 80's (recently topping out), plus massive gold selling by central banks (now largely over).

                 Your argument that gold must track expansion is without merit. First of all, GDP numbers are rigged. Secondly, allowing the government or the central banks to determine the rate of monetary expansion has always doomed fiat currencies in the past. I would prefer that free markets determined monetary expansion instead. Also, it is good for monetary stock not to expand with every economic boom, as it restricts the size of bubbles from getting created in the economy.

               The gold standard of 1871-1914 was a resounding success that was NOT because of any unusual circumstances. It will one day be reintroduced, but not before fiat currencies fail mankind yet again.

              First of all, governments can always be counted on for stupidity. Every single one of them. That's why fiat currencies have failed every single time in human history, while gold has always prevailed.
              Secondly, gold retains its value. An ounce of gold in London in 1899 would buy you a nice men's suit. An ounce of gold in London in 2001 would buy you a nice men's suit.

               I find it humorous that you talk about "sound economic development" while at the same time defend fiat currency. Maybe you are immune from irony.

              "The sun is not yellow, it's chicken." -Dylan

              by gjohnsit on Sun Apr 10, 2005 at 02:54:24 PM PDT

              [ Parent ]

        •  Gold is liquid (none)
          Where the Hell did you get the idea that gold isn't liquid?
             The spot gold price is posted in every major city in the world. Just try to find a nation where you can't easily find someone to sell your gold to.

             When we had bin Laden cornered at Tora Bora we told our Afghani allies to go up there and storm it. They refused. We offered them millions in paper dollars. They refused. The demanded gold bullion. There was a delay of several days until we could get it to them.
            Bin Laden escaped.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Sun Apr 10, 2005 at 11:34:04 AM PDT

          [ Parent ]

          •  Different concept (none)
            Gold itself is liquid, but as an investment vehicle, it is not.

            It only represents one particular asset class. It's hard to imagine that you use gold to purchase any other asset classes such as bond, stock, commodities etc in a mildly or non inflationary environment. That's what I mean gold is not a liquid investment vehicle.

            You can say US dollar, US treasury bills, Euro are liquid investment vehicles because investors can easily sell them or convert them into other asset and generate required return.

            I repeat my opinion, gold is not an attractive asset in the long run. Look at the chart, Gold price peaked in 80s(I believe, though need to check though) and was actually higher on a inflation adjusted basis. It's largely abandoned in 90s. The recent spike in gold price has largely to do with weakness in US dollar.

            I also believe the cause of spike of oil larges are two-fold. 1)Weakness in US dollar 2)Supply-demand imbalance.

            •  More misinformation (none)
              How is gold not liquid as an investment vehicle? Do you doubt that I can sell my gold any day of the week I want?

                Your comparison to paper dollars is false for a very basic reason: the law.
                 The federal government legalized a monopoly on currency. Combine that with Gresham's Law (ie. Bad currency always chases out good currency), and you have all the reasons you need to find out why paper dollars are everywhere.
                  And before we go any further, Gresham's law doesn't apply to just fiat currencies. If you go back to the Roman Empire, when they started debasing their coins (ie. less gold, more copper) people started hoarding the good coins while trading in the coppery ones.

                And to address the time frame argument again, measuring from the peak of a mania is not a good comparison. If you measured from when gold became legal to own again in the early 70's you would find the price of gold as having gone up four-fold despite massive official gold selling.

                One last thing, all the fiat people talk about generating a return. Gold doesn't do that. What they don't talk about is that paper dollars get debased every single year while gold doesn't. If paper dollars didn't generate a return then they would be worthless.

              "The sun is not yellow, it's chicken." -Dylan

              by gjohnsit on Sun Apr 10, 2005 at 03:05:16 PM PDT

              [ Parent ]

            •  serious question amongst the binary debate going.. (none)
              on here.

              I'd like to know one thing to at least let me have some perspective if its good to buy gold/silver or not.

              If our econony in the short term keels over, is it good to have gold/silver.  I'm not looking at it from a investment perspective.  I want to know if it's a good idea from a "I gotta a form of value to buy shit coz this paper money ain't worth a damn anymore" perspective.

              It looks like the debate here is focusing on moving to a gold standard or long term investment value.  That debate is cool and all that, but i want to know if its good to buy gold or silver if the economy takes a great depression like nosedive in the short term.  

              Just a simple answer would be cool. Continue the debate.

          •  that's how Midas died (none)
            he got a boon of turning anything to gold by his touch, which was nice until he wanted to drink.
          •  While I totally agree with you about gold... (none)
            I've still seen no evidence that we "had Bin Laden cornered at Tora Bora." I have, however, seen evidence that because we were giving the Northern Alliance money per head for "Al Qaeda members," they were pulling random Arabs out of the hills and getting money for them.

            If you haven't already, check out the BBC documentary "The Power of Nightmares." If you have broadband, I'll even send you the DivX files - e-mail me at

        •  Wrong.... (none)
          India and China put huge amounts of money into gold.
      •  I can't think of a faster (none)
        way to create another depression.

        The age of gold is so last millenium, get over it we are not going back.

        For the past 25 years gold has been a great hedge against capital gains.

      •  Fiat as a store of value (none)
        What you need is THIS Fiat!

        I've got fifty of 'em buried in my backyard, for when civilization collapses.

        I'm set. :)

        Defend your freedom, one threatened judge at a time.

        by cskendrick on Sun Apr 10, 2005 at 02:53:59 PM PDT

        [ Parent ]

      •  I Didn't Have Time Earlier To Add ... (none)
        The late Robert A. Heinlein, in one of his few non-fiction essays (I can't remember the name of the piece, but I do recall that it was in his Expanded Universe), stated, remarkably enough, that he had written a three volume history of currency and that it was, at the time (early 1980s) unpublished; insofar as I am aware, it remains unpublished to this day.

        Heinlein went on to state, on the basis of what he said was a not inconsiderable amount of research, that the value of gold had remained approximately constant for millenia, barring minor and temporary fluctuations due to war, financial and speculative panics, etc.

        He added that he came to this conclusion by determining determining how much gold was required to purchase a pound of "brown peasant bread," real bread, the kind on which you can actually live. He stated that this value remained approximately constant throughout human history, despite advances in technology, resulting increases in productivity, inflation, deflation, the introduction and use of fiat currencies, etc.

        Given the source, I'm inclined to believe his statements. Anybody at U.C. Santa Cruz (the depository of his archives) who wants to take a look and see if these volumes are there?

    •  The power of the dollar (none)
      If the US Dollar were not the currency of choice in the world, we would have been forced to deal with these twin deficits long ago, but it is, so we get a break. Not only do we get a break, but there are incentives in the international market for the US to run these deficits, albeit in a more moderate fashion. The US can probably run a current account deficit in the range of $150-250 billion per year as long as the dollar is the primary reserve currency and the world economy is growing. We could also run a government deficit of the same amount, for the same length of time without international economic consequences, but that does not mean that our domestic economy is not being strongly affected by this.

      Before the US had this role alone, the UK Pound was also a very important reserve currency (more important to their economy than the dollar as reserve currency had been to the US) and the UK, too, ended up with an economy that was also skewed by these outside forces.

      Republicans are poor stewards of America's government.

      by freelunch on Sun Apr 10, 2005 at 09:38:08 AM PDT

      [ Parent ]

      •  When Chinese and Indian (none)
        domestic markets become mature, that's the end of US dollar.

        Mark my word, that day won't be long. I'm paying close attention to China's domestic customer market, it's changing day by day. The auto and real estate markets are starting to become their growth engines which is a good sign that they are really diversifying away from solely depending on US market.

        I also believe a lot of Wall Street analysts are simply wrong. The near-term outlook for oil prices is not as bullish as they predict. There's a lot of seculation there. There is an obvious short-term correction in Chinese economy, that won't bode well for oil prices in the near term.

        •  cars and real estate (none)
          China's consumer market IS way ahead of where most people think it is. But it is based on a LOT of bad debt. The car compnies are finding 50% of car loans are not recoverable. And I've heard overall numbers are closer to 70%.

          For many big ticket items, the Chinese are paying what the Americans are paying--$30,000 for a car, $200,000 for a middle-class flat in Shanghai. But even the middle class is making like a tenth of what Americans paying those same prices. Sure, the Chinese are better at saving than Americans. But they're not THAT much better.

          •  Wrong, wrong, wrong (none)
            I hate to hear all kinds of misinformation on this board. I have real life experience there.
            To claim car priced at $30,000 in China is simply wrong. There's a big price war going on in China. Middle class don't buy Mercedes, they purchase their own domestic car, it might still look quite lousy from an American perspective, but it's affordable. In China, you can purchase a new car as cheap as $5,000 US.

            The bad debt on car loans is precisely the result of price competition. Some model drops $1,000 within two months, of course, consumers will just default on this type of loan, the bank can take back an almost worthless car. It has nothing to do with affordibility. In fact, most banks have just stopped car loans these days because of this.

            Real estate market is another story, there is obviously some bubble and affordibility issues there, and I'm not going to cover it here.

            There are a lot of armchair generals on this board. Please please do not make any superficial conclusions based on some superficial 'facts'.

            •  Um, no (none)

              I was in China working in a dealership 2 weeks ago. I leave on Thursday for another dealership. And I'm sorry, but you're wrong.

              I've seen happy businessmen walk into a dealer and drop that $30,000 for an import mini-SUV WITHOUT A TEST DRIVE. They're happy to do it.

              Yes, there's a price war going on. Has been for about 8 months. But these $30,000 cars are still selling well, trust me. The US car companies can't sell their cheap cars there, only their relatively expensive ones.

              And the Chery? Not so much. There are WAY more VWs and Buicks on the streets than the Chery.

              •  I don't know which city you were in. (none)
                But for a lot of middle class family, I just don't believe they walk in and drop $30,000 for an import mini-SUV.

                There are plenty of very cheap cars in China. In terms of persnal financial management, Chinese are extremely conservative although their banks might be another story.

                I don't believe the debt levels of most Chinese are high. You might say the opposite to their banking system though. Anyway, they have problems with economy as well, but it's different. They don't have deficit, they have surplus.  

                •  Ever had a problem parking in China??? (none)
                  I haven't. Drive right up to a major hotel or museum or restaurant and park, no problem. The reason why is because large numbers of the middle class are not yet buying cars in large numbers. If they were, goodbye parking.

                  (I remember talking to some engineers outsourcing their plant; the engineers at the new plant, they described, didn't--couldn't--own cars. They rode bikes. Weren't paid enough.)

                  The reason why the $30,000 cars are still selling (and selling well, except in party-owned dealerships) is because the businessmen want the clout. I'm not sure if they can pay for it or not, really. But they're going to drop that $30,000 rather than pay for a cheaper Chinese car or a cheaper VW or domestic because they want the face. And SUVs have barely hit. In Guangzhou two weeks ago, I kept following Toyota Prados, a car that I assume is going for at least $20,000 (assuming it is assembled in China, which I doubt it is). And you know what, as soon as I got out from behind the Prado I was behind an H2.

                  The price war has cut into margins (GM was getting $2500 in profit before and for the first few months of the price war). But the cars are still expensive--and selling well.

                  (Oh, and my dealer experience includes Guangzhou, Ningbo, and Shanghai; I'll be in Beijing next week.)

                  •  Jesus (none)
                    You haven't met traffic  yet in GuangZhou? Good for you.

                    Obviously, you just can't compare China's car penetration rate to the US. It  just won't reach that level maybe for ever. But nobody can deny the increase in absolute term. I read a report some weeks ago, which said China is already the third in terms of number of cars. This is astonishing, just as nobody paid attention when two years ago China outpaced Japan to become the second largest oil importer. We all know the consequence now.

                    The point is auto industry, real estate have historically been the indicaion of a developing and healthy domestic market.

                    •  Traffic v. parking (none)
                      Traffic, I've met. Parking problems, not a one. That's kind of my point. Yes, the volume is huge, and underestimated. But by the same token, your average middle class engineer can't yet afford to buy a car. Sure, maybe they can buy a Chery, But they're not doing so.

                      So the number of people on the road is huge. The percentage of people using a typically middle class haunt who have cars is not yet huge.

              •  So you're basing this off of a business man? (none)
                You know, I hear that golf courses are selling really well in this country.  Donald Trump just walked onto one's green recently and bought one without even shooting a few holes first.............

                In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

                by Asak on Sun Apr 10, 2005 at 07:58:29 PM PDT

                [ Parent ]

                •  No (none)
                  I'm basing it off of seeing the financials for a number of dealers around China, complete with the increase of sales on these $30,000 vehicles. And also talking to guys who are wholesaling these cars around China.
      •  I agree (none)
        the dollar hasn't failed because it's still in many countries' best interest the not let it fail.  Right now, a big fall in the dollar could lead to a global recession.  We've already seen hints that other countries are diversifying their currencies to mitigate this threat.

        What color are your pajamas?

        by Unstable Isotope on Sun Apr 10, 2005 at 10:08:13 AM PDT

        [ Parent ]

      •  And if horses could fly (none)
        the shit storms would be terrible.

        But the dollar is the world's currency and will continue to be so for a long time to come because the US economy is still the largest, most open and dynamic economy in the world.

        The pound lost its role as a world currency as a result of the losses the UK suffered in WWI and was finished off in the 1920s when Churchill and others insisted on putting it back on the gold standard. It was the end of the empire coupled with very bad economic policy that did the pound in.

        •  End of Empire? (none)
          That has a familiar ring.  And just how long do you foresee our Empire of bases and forces and clients all over the middle of the world lasting?

          It's not just the twin deficits.  We are also driving our military into the ground.  And the increasing trend towards more income inequality does not strike me as a stabilizing force in this country.  Add to that the increasing prevalence of craziness among public officials and in public discourse, and things look even less stable.  We may be the largest economy, but we are not the strongest and most stable.

          If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

          by Mimikatz on Sun Apr 10, 2005 at 12:57:12 PM PDT

          [ Parent ]

          •  Ok, Who has a stronger and more stable (none)

            This is really the $64 thousand dollar question.

            The Euro gets talked up here but there is a lot of worry about the long run stability of the Euro. The history of currency unions is not a happy one, they also require a mobile labor force to work, which Europe does not have.

            If France votes down the EU constitution, the Euro is going to get slammed.

          •  We are very strong and very stable... (none)
            just look the people involved in the minuteman project.  Very strong.  Very stable.  They will fill in the holes of our overseas military infrastrucutre.
        •  Sounds like wishful thinking to me (none)
          From what I've read of the economists, much of the rest of the world is getting pretty sick of our economic irresponsibility and is mapping out the most discrete way to the back door.
        •  flunking kindergraden again (none)
          "But the dollar is the world's currency and will continue to be so for a long time to come because the US economy is still the largest, most open and dynamic economy in the world. "

          First off this makes no logical sense at all. To say "X will be true for the forseeable future because Y is true now" is an absurd argument. That is like arguing that because the NASDAQ was 5000 in March 2000 that the expansion was going to last forever.

          Second, the E25 is now a larger economy than the US.

          Third, most open? Not by most measures of transperancy.

          Fourth, dynamic? Not even close to China's in level of GDP growth, monetization, entrepreneurial expansion.

          The reason the US dollar is the reserve currency is that the US military protects crucial trade flows, and nations store their wealth in the US equities and debt markets. The first is a wasting asset - as the era of the cold war recedes, the value of superpowerdom does as well. The premium other nations are willing to pay goes down as well.

          The second hinged, for a long time, on the first. When it becomes appearant that there is a long term bubble in US equities that cannot be maintained, it too will fade.

          This is why the Republicans are trying to engage in a borrowing scheme to shunt money into the US stock market, it is the only way to keep (2) in place - pour more of the US revenue stream into it. When this attempt fails (as it seems likely to do) the US dollar is on the downside of its curve.

        •  More meaningless statements (none)
          The dollar's days are almost over because the dollar's fundamentals are the worst in the industrialized world. No industrialized country has larger foreign debts and current account deficits. Even Republicans admit that this is unsustainable.

            And as for the "most dynamic economy" BS, I've heard that so much it makes me puke. It's a meaningless statement. It has nothing to do with nothing because it is so vague that it means nothing.
             It reminds me of the Asian Flu of 1997-98. American economists, politicians, and talking heads, in their arrogance wrote it off as "crony capitalism". Back then I didn't know nearly as much about economics, but I knew a meaningless, BS statement when I saw one.
             It turns out that my instincts were right then, and they are right now.

           Lastly, the Pound lost it role partly because of WWI, but going back on the gold standard had nothing to do with it. The second reason the Pound lost its role as reserve currency was because of America's insistence that they pay off war debt and interest. Fiat currency people seem to forget that France, England and the rest of our allies defaulted on their war debts to us before Germany defaulted on theirs.
             Why do you think the America economy boomed so much during the 1920's? Because Europe shipped nearly their entire supply of gold over to America during that decade, and the banks had much more money to loan to people that weren't credit-worthy.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Sun Apr 10, 2005 at 03:17:58 PM PDT

          [ Parent ]

    •  Euro is Becoming One (none)
      The euro is slowly becoming a reserve currency, but it's not replacing the dollar entirely. Rather, central banks are realizing that it's safer to diversify their reserves by holding euros and dollars.

      This doesn't automatically mean a huge crash in the  dollar, though it does mean a fall, especially relative to the euro (which is already happening). The US now has to share the benefits of controling a a global currency with the EU, which was the main motivation behind creating the euro.

    •  Indeed. (none)
      Once China gets a viable middle-class in place to consume all it produces, watch out.

      To be great is to be misunderstood

      by LordFairfax on Sun Apr 10, 2005 at 12:10:41 PM PDT

      [ Parent ]

  •  Gasoline may do it (4.00)
    I was watching Lou Dobbs the other day and his guest was some Senator.  They were discussing this very issue.  Lou asked him why Bush & Co was refusing to address these issues.  He gave some crap answer that the problem was the WTO and unfair trade agreements.  Because the Pres can Fast Track aggrements the Congress can only vote yes or no and can't ammend the agreements.  So it's the Pres's fault, but Congress gave him the authority.

    When Lou asked him about the huge trade imbalance he said that the US needs to just export more goods.  Lou came back with "just what is left for America to export"?  The Sen. had no answer.  

    Lou also said that the US was now not only importing oil but was importing 10% of the gasoline needed because US refineries can't keep up with demand.  I didn't know this.  Americans aren't screaming about higher prices, aren't driving less and with summer approaching the need for more gas may be the straw that tips the balance.  Will $3.00 a gal. be enough for people to change their habits?  I doubt it.  Too many people just put it on their credit cards and don't care what the price is.  In the 70's when gas doubled in price and we had lines at the pumps, the only recourse we had was to buy imported foreign cars that got better gas mileage.  We we labeled unamerican for doing that.  US Auto Makers blamed us for their downturn in sales because we were buying foreign cars and not supporting them.  They finally began building smaller cars.  Instead of going for more fuel efficient cars they turned to SUV's.  Once again their sales are down and gas prices are rising.  Now they blame the rising cost of health care for their employees and those retired.  They never blame themselves for refusing to spend money to re-tool and build fuel efficient autos.

    Will Bush & Co. do anything?  I doubt it.  I really think they think the cards will not come tumbling down until they're out of office and it won't be their problem to deal with.

    •  Yup. (4.00)
      That's why it is so enormously crucial for Democrats to unequivocally get the message out that the GOP is wholly responsible for the sorry state of affairs which will come to fruition within the next ten years.  I agree with your statement that there is a strong possibility that those who are the architects of these horrific economic possibilities will escape responsibility by blaming the coming collapses on future (probably Democratic) governments.
      •  Bingo! (none)
        It's their albatross, we should hang it around their necks, paint it neon green, and tell the world about it.
      •  I fear... (none)
        ...their strategy is something else.  Rather, instead of loot now, get out of office and let someone else clean up the mess, it may be loot now, hasten the collapse and ram through authoritarian and draconian policies and "reforms", portraying them as the only way out of the mess.  A Reichstag fire on a national scale, the crisis that gives them the cover to seize the power they secretly dream of.  Because the public here understands almost nothing about how the world really works, and is so politically immobilized and confused, it may just work.

        "Skip a bit, brother Maynard."

        by scorponic on Sun Apr 10, 2005 at 11:58:37 AM PDT

        [ Parent ]

        •  it just may. (none)
          but then again, you might get branded as a tin foiler for saying such things.  Sometimes it amazes how some of us progressive people can be just as one-sided as conservatives for any idea that may exist outside the box.
    •  refineries... (none)
      I've heard that not only are there not enough refineries to supply demand, but they aren't making any new ones because pollution laws are too strict to make them "profitable", however the older refineries are grandfathered into lower standards.  This also means that any refineries that are destroyed (weren't a couple destroyed by a fire in CA?) are not being rebuilt either.

      Again I don't know if this is true for sure.  it's something I heard somewhere.

      Sorry, I have nothing else to add to this conversation.

      by DawnG on Sun Apr 10, 2005 at 09:41:10 AM PDT

      [ Parent ]

      •  Decline in Refinery Capacity (4.00)
        Apparently, it is indeed true.  According to this Knight-Ridder news article,
        The number of domestic refineries is declining. In 1980, there were more than 300 U.S. refineries. At the end of 2003, there were 149, roughly a 50 percent decrease. Through early June, those refineries cranked out 8.5 million barrels of gasoline a day, up 4 percent from last year. Some are running at close to 100 percent of their capacity just to keep pace with demand, so it's tough to further boost production. The chance of new ones being built is slim. The last major U.S. oil refinery was built in 1976, and stringent pollution controls and the overall public distaste for refineries make it nearly impossible for oil companies to build more, oil experts say.
        Pretty much along party lines, House Republicans last summer passed legislation designed to speed construction of new refineries.  An AP story on the bill, appearing in the Columbia (MO) Daily Tribune noted that: "Refinery capacity today is about 16.8 million barrels a day, compared with 18.6 million barrels a day in 1981, according to the National Petrochemical and Refiners Association."

        In addition to the occasional refinery fire, much of the decline in capacity is due to the shuttering of smaller refineries which had higher operating costs.  (This also explains why capacity has declined by only 10% while the number of refineries has gone down by 50%.)

        But a large part of the problem is also due to NIMBY writ large:  basically, no one wants a gleaming new petrochemical refining complex anywhere even remotely near to where they live.  Since logic distates that refineries be located close to port facilities (otherwise, the costs and headaches associated with major pipelines come into play, not to mention compounding the environomental issues), and given America's real estate love affair with coastal properties, the difficulties become ever that much greater.  It's not clear how we can get around this conundrum without making a large number of people very unhappy.

        •  The smell of Enron (4.00)
            Let me get this straight.  The cost of energy is increasing because the energy producing firms are closing production facilities, and can't open new facilities because of environmental regulations even thought their profits are at record highs.  Do I understand this correctly?  I think I've heard this somewhere before. That's what Enron and company did to the west coast a few years back.
            Anyone else see the similarity?
          •  curious question.. (none)
            ARE their profits at record highs?  I'd be really suspicious of anyone showing record profits with all the criminal book keeping I don't trust any profit numbers right now.

            Sorry, I have nothing else to add to this conversation.

            by DawnG on Sun Apr 10, 2005 at 03:08:16 PM PDT

            [ Parent ]

        •  NIMBY - for a good reason (none)
          A friend's medical practice is 85% oil-patch Texans who, after eating, sleeping, breathing, & etc petro-chemicals all their lives, wonder why they are dying in their 50's.  

          Oil refineries are toxic hell-holes for those who work in them and those who live anywhere in the area.

          "...[one] must still have Chaos in oneself to be able to give birth to a dancing star." Nietzsche

          by ATinNM on Sun Apr 10, 2005 at 05:22:05 PM PDT

          [ Parent ]

      •  Spin (4.00)
        The GOP spin is that energy shortages and high prices are always the fault of environmental regulations.

        Many of them even say that U.S. oil hasn't peaked: The country could supply its own energy needs if only the oil companies weren't prohibited from drilling in ANWAR, the National Parks, or wherever.

        Most of the oil companies don't actually want to drill in those places, as there isn't actually miuch oil there. But industry as a whole does want environmental and worker protection rules eliminated. And more important, it helps elect Republicans: When gas prices hit $5, Fox News will be telling everyone that it's all the fault of those evil liberal eco-terrorists.

      •  That's not the whole story (none)
        There is some NIMBY problems there, plus environmental regulations.
           But the fact is that the oil industry doesn't want to build more refineries. You rarely hear about that part.

        "The sun is not yellow, it's chicken." -Dylan

        by gjohnsit on Sun Apr 10, 2005 at 11:21:35 AM PDT

        [ Parent ]

        •  The don't want to build refineries (none)
          in the US and haven't since 1973 because of environmental regs, and high costs.

          That has not kept them from building refineries overseas, which they have.

          The market for oil is a global one, it doesn't really matter where the oil is refiined.

      •  Why build new refineries if peak oil is coming? (3.50)
        Part of the problem is economics.  Many oil co executives remember what happened AFTER the oil shocks of the '70s.  Prices went up.  At first exploration and production ramped up.  Then, when worldwide demand slumped and before China got going, there was an oil glut.  I remember an issue of the Economist not so long ago asking if we would hit $7 a barrel oil.   At that price whole countries and companies could not produce economically.

        It didn't happen, but oil execs remember.  They are very nervous about putting a lot of money into new production, especially when new oil is so hard to find, and new technologies may be coming in.  

        Of course they blame it all on pollution controls, but that is what industry always does--it is a twofer, in that it shifts the blame off them and undermines support for pollution control.

        If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

        by Mimikatz on Sun Apr 10, 2005 at 01:05:47 PM PDT

        [ Parent ]

      •  mostly BS (none)
        No refineries were "destroyed" by fire.  They have unit blow up from time to time, but it's usually not huge money to repair them.  The lost production is usually a bigger expense.

        The smaller refineries were given longer periods to meet clean air/fuels regs.  Many closed rather than spend the money.  You can find a way to make enough money to pay for revamps of a 400,000 bbl/day refinery in Houston pay off.  But for a 25,000 BPD unit in outback nowhere Kansas..... no chance.

    •  Oil and Transnationals (none)
      Oil imports alone might account for as much as $180 billion of our current trade imbalance -- $50 per barrel x imports of just under 10 million barrels per day (source: Energy Information Administration, DoE) x 365 days per year.  (Of course, most of the oil contracts were not negotiated on the spot market and carry lower prices, but this is for illustrative purposes.)  That's about 30% of the trade deficit right there.  Unfortunately, though, what this also demonstrates is that a decline in imports of even 2 million barrels per day (what most folks seem to think is a reasonable medium-term goal through conservation and efficiency) would only have a very minor effect on the trade figures.

      Another major factor to consider of which this senator (and quite possibly Dobbs as well) seems to have been unaware is that apparently some 48% of our imports consist of goods and services of American companies' foreign operations.  A column in today's New York Times Week in Review section mentions this briefly:

      [There is a ] growing tendency to assemble American finished products out of parts and components made overseas, often by American companies.

      This trend, which involves the interests of importers, exporters and domestic manufacturers, complicates any effort by Washington to shape a policy to reduce the trade deficit without doing American companies more harm than good.

      Looking at it this way, we're even more stuck in a bind than many may have considered.
      •  Yup (none)
        You can't continue to increase profitability AND decrease imports. The imports are where a lot of profitability has come from, making cars with parts that cost 1/2 of what they used to cost, even including the shipping charges.
    •  Jerome a Paris (none)

         posted a diary about how prices might affect demand, comparing oil to molybdenum and whale oil.

          (I'm too lazy to give you the link :))

      (J., that still means you owe me a diary pimp ;))

          (Um, when I finally write one, that is.:()


    •  Effect and cause (none)
      We import big chunks of our mogas because other countries chose to build uneconomic refineries and sell gasoline into the best market available == USA. (esp US Northeast)
      Why else is their an enormous export refinery in Mongstadt, Norway?  Hugely uneconomic (much cheaper to ship crude than gasoline) but the Norwegians wanted jobs.

      Also oil producing countries like Saudi, Venz wanted to diversify and create jobs in their own countries.  So they also built export refineries targeted at our market. And countries like Brazil that chose to use ethanol for domestic needs, exported gasoline to generate forex.

      Even if a refiner could have gotten permits for a new refinery in the US North East (the primary destination for import cargoes) you couldn't make the numbers work.  As a result, Exxon dumped Bayway for a song, Chevron all but closed Perth Amboy, others were rationalized.  The investment needed to make an old refinery good vis a vis clean air and clean fuel regs was ugly.  

      Capacity was expanded in the USGC, but barely enough to keep up with closure of older, small refineries that couldn't afford to meet clear air and clean fuel regs.

      People forget that this tight mogas market has only been a factor for about 3-4 years.  As recently as 10 years ago, you couldn't hardly give a refinery away.  Other European export refineries that had a hard time competing with govt monoliths like Mongstad were dismantled and shipped to India.

  •  A word about Lou Dobbs- (none)
    Many here consider his beliefs on illegal immigration shameful.  His beliefs are certainly one-sided; he castigates the gummint at every turn for a problem that is fueled by those glad to hire and abuse them.

    However, there has been no one in televised media as willing to take on the economic policies of this administration as Lou.  He has been consistent and very capable in his deconstruction of the lunacies that Bushco has foisted on the next decade or two.  He and Aaron Brown (who seems to have given up, IMO) are the only CNN types I consider to be worth my time spent watching them.  

    "Never mind the trick, what the hell's the point?" Joseph Heller, Catch-22

    by wozzle on Sun Apr 10, 2005 at 09:12:21 AM PDT

    •  Agreed. (none)
      He's sort of a Pat Buchanan-type (but I don't mean he's as far-right as PB).  Like Buchanan, he's a strange mix of right-left ideas.  Dobbs can sound like an anti-globalization protester at times, and Buchanan has written some great anti-war stuff.

      "Skip a bit, brother Maynard."

      by scorponic on Sun Apr 10, 2005 at 12:15:51 PM PDT

      [ Parent ]

    •  I like Lou (none)
      I may not agree with him on everything, but I respect him even when I disagree with him.  (Well, except maybe on the Iraq war.)

      He does not give the employers who hire illegals a free pass. Quite the opposite.  He thinks the government should crack down on them.  In fact, the main reason he opposes illegal immigration is that he sees it as a way for employers to pass off the cost of labor to the taxpayers.  Instead of paying for health insurance for their workers, taxpayers end up paying the emergency room medical bills.  (Which tend to be very high, because illegals don't get preventive care and tend to work dangerous jobs.)  Instead of paying a living wage, they pay rock-bottom wages, often under the table.  

      Lou does not buy the "illegals work jobs Americans won't take" idea, and he knows what he's talking about.  He used to do the kind of grueling farm labor that illegals do now.  If you pay enough, Americans will do it; that's Lou's argument, and I think he's 100% right.  

      Protons have mass? I didn't even know they were Catholic.

      by randym77 on Sun Apr 10, 2005 at 06:22:54 PM PDT

      [ Parent ]

  •  Here's what we need to do (3.50)
    We need to articulate a set of policies for how to deal with this crash when it happens, and ensure that all Democrats are on board with it - or at least that one of the presidential candidates is. Because if we are to fix this problem when it comes, we need to be offering a solution. But if Dems simply offer more of the same, as they've been doing in the area of economic policy, then we are truly all fucked.

    I'm not part of a redneck agenda - Green Day

    by eugene on Sun Apr 10, 2005 at 09:39:38 AM PDT

    •  Amen (none)
      I said exactly this a couple months ago, but got no good responses. In fact, the only responses I got were from people who told me that things weren't so bad and that they would work out on their own.

        The denial in America goes even to the dailykos.

      "The sun is not yellow, it's chicken." -Dylan

      by gjohnsit on Sun Apr 10, 2005 at 11:18:29 AM PDT

      [ Parent ]

    •  Dems Achilles Heel (none)
      One explanation of why so many Dems lined up with the banks and credit card companies on the bankruptcy bill is that one of the few sectors that Dems can cozy up to for donations without upsetting labor or enviros is the financial services industry.  

      The Dems ideally should take a strong stand on deficit reduction and increasing revenues to pay for what the GOP Congress and Prez have determined the American People need.  No more tax cuts and don't extend the Bush tax cuts.  This one is easy because it is tarring Bush and the GOP with the whole mess.  But expect defections on extending the low dividend and capital gains tax rates.  

      The second part of the program is to get us into a position where we could fund jobs through public expenditures.  Not make-work jobs, but infrastructure repair and building, and teachers, cops, firefighters, health care workers, especially emergency workers.  Like during the great Depression.  The taxes to fund this can't come from the unemployed, but will have to come from the wealthy, because as Willie Sutton said, that's where the money is.

      If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

      by Mimikatz on Sun Apr 10, 2005 at 01:15:07 PM PDT

      [ Parent ]

      •  Turn toward localism (none)
        It seems to me a really good Dem-friendly solution to some of these problems is some credits to invest in HONESTLY local businesses. Make sure that the store that will keep 80% of the cash spent there in the local community can get a loan, can allign with other small stores to get the discounts WalMart gets. Make sure small businesses can offer health care--or better yet, have the government offer it for them.

        The local business thing works on a larger scale--the more money spent locally is more money not spent in China.

  •  On Consumption (4.00)
    Americans are trying to sustain their standard of living amidst a war.  This never has happened.  In World War II, the government ran the economy for the duration, which postponed the bad effect until 1946.  In Vietnam, the "guns and butter" policy of Lyndon Johnson led us into the stagflation of the 1970s, which did not completely unwind until the 1990s.

    The American people will pay for this war for decades.  The interest on the national debt will become a permanent drag on the economy.  This has not been noticed yet because of the deflationary situation after the so-called dotCom bubble.  The Fed can create money and not create inflation--until now.  The main policy to deal with this would be to reverse the Bush tax cuts and create a progressive tax surcharge.  Higher income families spend absolutely more in consumption than do less wealthy people.  The aggregate consumption of these people is what is discretionary and subject to policy.  A progressive tax on income reduces consumption where it makes a difference, among the upper middle class and the wealthy.  Even without capital gains increases, taxes on income increase saving among the upper middle class and wealthy.  Whether that savings is in cash or in investments depends on market conditions and the sense of financial risk.

    Corporate management has failed America.  They have not identified (other than international force) America's comparative advantage in the global economy.  And they are not trying to figure it out.  Where are the workplaces to employ Americans.  They are not being created and the excuse is that Americans are not saving enough.

    It is not the retail sector that is overspending, but the governmental one and the commercial one.  Homeowners may be taking out equity loans, but corporations have been putting cash into outsourcing contracts instead of capital investment.  It's not an overconsuming society as much as it is a cut-and-run society.

    The revolution starts now--in your own back yard, in your own home town

    by TarheelDem on Sun Apr 10, 2005 at 09:48:44 AM PDT

    •  Your missing severl important facts (none)
      During WWII, the war consumed nearly 80% of GDP,
      Korea took up 15% of GDP
      Vietnam cost 6% of GDP
      Iraq is about 1.5% of GDP

      The need to sacrifice is much less given the relative low cost of the Iraq war compared to past conflicts.

      The stagnation of the 1970s was due more to Nixons wage and price controls than to anything LBJ did.

      Corporate management is hardly a monolith. There are good ones and bad ones. If US corporate management has failed so badly then why is the unemployment rate in the US half that of either Germany or France?

      While outsourcing is taking place, business investment is up 15% in q4 2004 from a year ago and orders for non-defense capital goods were up nearly 20%.

      •  And LBJ did raise taxes for Vietnam (none)
        At least to some extent.  that was when i first started working, and I remember a "surtax" in the mid 1960's.

        If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

        by Mimikatz on Sun Apr 10, 2005 at 01:17:44 PM PDT

        [ Parent ]

      •  I don't know how Europe calculates unemployment, (none)
        but the US calculation is highly manipulated.  For example, anyone who has not looked for work in the week of the survey is not counted in the headline "unemployed".  They are relegated to another category.  

        If those who have given up hope of finding a job, those who work part-time only because they cannot find full-time work, etc. are included the "unemployment rate is officially about 10%.

        Even this is probably understated.  

      •  Nixon's Wage and Price Controls (none)
        Iraq may be 1.5% of GDP but our entire military-industrial expenditures are much higher.

        Lyndon Johnson may have begun the guns and butter policy but this was only from late 1965 to January of 1969.  Nixon continued this policy from 1969 until he left office in 1974.  Nixon's wage and price controls were supposed to deal with the military-expenditure-caused inflation and the spike in oil prices caused by the politicization of OPEC.  Neither of these had anything to do with domestic consumption that ordinary citizens could control.  They were stuck with their gas guzzling cars until the Japanese automobile saw an opportunity.  Then in the Reagan recession, all we saw in the press was how Japan was taking away our business.  If US corporate management was so smart, how did they not see an opportunity where Japan saw one.  US management thought in terms of lowering wages and skimming the cream of the Yuppie market; all other consumers could go to hell.  How did this happen?

        Corporate management is not a monolith, but it is the largest example of groupthink.  Nothing shows this better than their investment in dotComs and their failure to recover from the dotCom bust.  You had a collapse of demand because of layoff and corporations accelerated the fall by pre-emptively laying off employees.  As a consequence the stock lost even more value than it had from the dotCom, Enron, and Worldcom collapses.  Corporate management is diverse, but the US Chamber of Commerce and the Business Roundtable speak to Congress in one voice--gimmme, gimme, gimme.

        But who is the problem?  The consumer or the workers--in other words, ordinary folk in households.  And who are the white knights creating jobs -- corporations and individuals who are extorting tax breaks from state and local governments, who find environmental protection and fuel efficiency standards to costly but not executive salaries and perks.

        Why is the unemployment rate in the US half that of either Germany or France?  First of all, I'm not sure that it really is.  There are a heck of a lot of trained workers working multiple part-time and full-time jobs.  There are a lot of discouraged workers who do not show up in the stats.  And given the record of the Bush administration in manipulating information, how can we be assured that the stats for the US are still on the level? Also, German and French companies (actually, their US subsidiaries) are investing in US labor because of the dramatic drop in wages and salaries here--enough to hurt there but not enough to help here.

        Business investment is up, but this can be a misleading figure.  Purchases of existing companies count as business investment, purchases of financial instruments count as business investment, but neither help consumers or workers--unless they are managed very well.  And the record for management of mergers and acquisitions has not been good--differences in corporate culture, information systems that must be integrated, and so on.

        I'm not really sure what counts as a non-defense capital good.  Does machinery for a defense subcontractor who serves both military and industrial markets with the same goods count as non-defense capital goods?  And I didn't say that nothing was happening, I said that corporate management had not yet figured out what America's competitive advantage is--other than military.  Even Paul Samuelson has voiced this view in his concerns about free trade as it is currently being pursued.  If we outsource services, manufacturing, design, and engineering of stuff, what is left?  Only local retail and establishments that require walk-in customers--auto repair, dry cleaners, and so on.

        The need to sacrifice is much less, but it requires that Bush reverse the tax breaks that he passed in 2001.  It is not households and consumption that have created this problem, it is the business lobby.  And who do they respond to?  Corporate management.

        The revolution starts now--in your own back yard, in your own home town

        by TarheelDem on Sun Apr 10, 2005 at 01:59:56 PM PDT

        [ Parent ]

      •  That's not the point (4.00)
        The point is the Bush tax cuts, which devastated the national saving rate.  Capital spending is up, but what's the share for net capital formation in GDP.  Is it up as compared with four years ago?  I doubt it.  What are the sectors that are attracting all that foreign investment (directly or indirectly)?  Looks like our best export right now is Treasury paper.  I'm betting the terms of trade will be turning against us on that export soon.

        Steve Roach got it right about 10 days ago.  We are living in the last days of an 'asset-based economy'.  People cannot perpetually spend out of assets in the belief they can unload them for a capital gain.  For that to happen, there has to be saving some place in the economy (or in the world).  The odds of foreigners buying up all these over-priced McMansions so they can live in the land of the free, with rights to possible free lodging in Guantanamo -- seem to me to be rather low.  And there aren't enough domestic savers to make up the difference.

        It's a mugs game.  We used to call it a Ponzi scheme.

        •  I know Steve Roach (none)
          He is like a broken clock who gets it right once every business cycle.

          Nice guy, but chronically wrong about the world economy.

          Foreigners will continue to invest in the US as long as it continues to be the best place in the world to invest. What makes a place a good place to invest is political stability, good return on capital, economic growth, an educated labor force, a large local market, favorable tax, labor and enviro laws.  By that measure, the US will continue to be a better place to investment than most of the rest of the world.

      •  More misinformation yet again (none)
        "The stagnation of the 1970s was due more to Nixons wage and price controls than to anything LBJ did."

          That's not even close to being the truth.
        First of all the wage and price controls were for a very short time and failed.
           The reason for stagflation in the 70's was the same reason for inflation in every generation and every country: a massive devaluation of the currency caused by printing dollars out of thin air.
            Why do you think Bretton-Woods failed when it did? It failed right at the end of the Vietnam War, after America had printed so many dollars that our trading allies stopped wanting our current account deficit settled up in dollars, and instead started demanding gold. When Nixon realized that we didn't have nearly the gold to cover our foreign debts he took us off the quasi-gold standard.
           Once that happened the dollar's value was free to float, and of course, it promptly fell by half.

          Daisy, you really should stop giving economic advice. You are causing more confusion than anything else.

        "The sun is not yellow, it's chicken." -Dylan

        by gjohnsit on Sun Apr 10, 2005 at 03:49:30 PM PDT

        [ Parent ]

      •  just wondering... (none)
        does the difference in employment rate take into account the quality of employment?
    •  When the fed looks at the rate of inflation (none)
      what measurment do they use?  Does it include food?
  •  Comments on Bop (4.00)
    Volcker's summary is half the problem - the investment half of the problem. The other side of the problem is the energy side of the problem: people use oil to trade rent here for rent of oil, which generates the trade deficit that Volcker warns of, and the profits of this generate the ability of other nations to send investment back to the US.

    Thus the other half of the cycle - and why Volcker does not see policies to end the investment deficit any time soon - is that people use energy to cover over the problems
    of the investment deficit.

    Remember the whole vicious cycle is

    1.Energy deficit leads to trade deficit
    2.Trade deficit leads to investment deficit
    3.investment deficit leads to budget deficit
    budget deficit leads to wages and wealth deficit
    4.wages and wealth deficit are responded to by burning energy to prop up other assets  - which worsens the energy deficit.

  •  What did Argentina do? (none)
    And is there a lesson there?  

    Thanks again Bonddad.  I'm learning more just from reading you than I did in my micro and macro courses from 20 years ago.  Of course, I was more interested in earning the cash to go on tour, so of course I didn't pay attention much.

    •  Argentina (none)
      I don't know much about the policy solutions to Argentina's woes, but I can tell you about one grassroots thing that is happening there in the aftermath of the collapse: the formation of worker cooperatives.

      Let's say our own economy collapses. China pulls the plug on its investments. Auto companies collapse under their own weight. What might our changed world look like? How will we cope?

      The Take, a documentary by Avi Lewis and Naomi Klein, takes a giant step in answering these questions. The Take unfolds in the aftermath of Argentina's economic collapse brought on by a decade of rampant privatization. Basically the Menem government gave the corporations everything they ever wanted. With whipped cream and a cherry on top. Sound familiar?

      But, surprise!, some workers begin to reclaim the shuttered companies that once employed them. They run them as worker cooperatives where everyone has a say and people are typically paid the same amount, no matter what functions they perform. They network with other cooperatives for business and advice. A sense that they are creating a viable new model starts to take hold.

      The movie paints a very ugly picture of the rich and powerful--the IMF, the corporate owners, the corrupt politicians. Former president Carlos Menem even looks like the evil guy in Rosemary's Baby. A pet tactic of these people is to use the might of the government to protect "private property." Police constantly try to seize the companies from the workers. Legal battles abound,

      See The Take. Organize a screening in your community. Start opening your mind to alternate ways of life. Then, when things turn upside-down on our own soil, you won't need to spend several stunned years crying into your beer over all that has been lost. Out of chaos comes opportunity--prepare your mind to make the most of it.

    •  Argentina's debt was denominated in dollars (none)
      When the currency sank, the value of the debt rose.

      US debt is also in dollars, when the dollar sinks, the value of the debt actually drops as a declining dollar is slightly inflationary.

      That's why, the US will never face the problems Argentina did as long as our debt is denominated in US dollars.

      •  Daisy. Please get your facts straight. (none)
        Argentina went belly up.  They are paying their creditors 25 percent on the dollar.  In my book, that comes to a 75 percent decline in the value of the debt.  Maybe you have some kind of fuzzy math that does the calculations in a different way.  If you do, there's a guy at my club who would like to know.  He's out about $300,000 for the bet he placed on Argentina a few years ago.
        •  I think you missed my point. (none)
          Yes, after the fact, Argentina's debtors got pennies on the dollar for their debt.

          But that was after the bankruptcy.

          What pushed them over the edge was their assets were in pesos and their debts were in dollars. When the Argentine peso fell in value, the burden of the dollar debt rose. When the peso fell by half, the burden of the debt doubled. Very few businesses can withstand a doublinig of their debt burden and not roll over into bankruptcy.

          The same thing happened to the Thais and their creditors in 1998.


      •  More Argentina misinformation (none)
        Argentina didn't go belly up because their debt was denominated in dollars.
           Argentina went belly up because their debt was owned by foreigners and was too large for them to pay.
            That's why their scenerio is much like our scenerio.

        "The sun is not yellow, it's chicken." -Dylan

        by gjohnsit on Sun Apr 10, 2005 at 03:23:14 PM PDT

        [ Parent ]

        •  both statements are partially true (none)
          The dollar denominated debt obviously deteriorated the situation when they were in an inflationary spiral.  But the fundamentals are still very similar to US. To simply put, they were running a deficit fiscal policy, in the end, nobody would pick up the tab simply because they could not repay the debt. It will happen eventually for US economy when China and India don't depend on US. so heavily for their economic growth, they will simply abandon US T bonds.
        •  It is not misinformation (none)
          It is how international finance works.

          Think of a business balance sheet.

          Assets are in pesos, debits are in dollars.

          Your business income all comes in from pesos.

          You borrow at 1 peso to the dollar. Then the peso devalues to 2 pesos to the dollar.

          Your debt in pesos relative to your assets in pesos has now doubled.

          Not many businesses can withstand that kind of increase in the burden of their debt and so many of them went bust, restructured their debt and went about their business.

          Same thing happened in Thailand in 1998 when their currency took a header.

          And the same thing won't happen in the US because all of our debt is in the same currency as our assets.

          •  Right idea, wrong timing (none)
            "You borrow at 1 peso to the dollar. Then the peso devalues to 2 pesos to the dollar.
            Your debt in pesos relative to your assets in pesos has now doubled.
            Not many businesses can withstand that kind of increase in the burden of their debt and so many of them went bust, restructured their debt and went about their business."

               All true, but with one very important thing you left out: the timing of the crisis.
               The fact is that the devaluing of the peso was the last step in a crisis that built for several years. And because of the timing, your comparison lacks weight.
               Let me explain. The peso was pegged to the dollar. Now why did Argentina drop the peg and allow their country to have this horrible economic crisis? You see, that's the key here. You are only looking at the end of the crisis. By that time it is far too late. The cause of the crisis is what makes all the difference.

               And what caused the crisis? The crisis was caused because foreign creditors bailed out of Argentina. Argentina had to delink their currency from the dollar because they simply could no longer pay the enormous foreign debts at a one-to-one level as foreigners withdrew their investments.
               Now lets look at America. Argentina's total foreign debt is less than the amount of debt America borrows in a single quarter. We are no more able to pay back our debts to foreigners than Argentina was. Eventually foreign investors will figure that out, probably around the time that America has trouble even paying interest on those debts. That's when there will be a flight to safety. And the dollar won't be safe.

            "The sun is not yellow, it's chicken." -Dylan

            by gjohnsit on Mon Apr 11, 2005 at 06:30:52 PM PDT

            [ Parent ]

            •  If you go back even farther in the crisis (none)
              I think you will find that before foreigners bailed, the Argentines themselves bailed. They loss confidence in their own government and currency.

              But your comparison of Argentina to the US doesn't work. Our debt is in dollars not some other currency. If foreigners lose confidence in the US the consequences are much different.

              In the case of the US, the dollar will drop, possibly slowly, the trade deficit will narrow which actually adds to GDP growth.  Interest rates will go up.  The question is whether this will happen quickly, as was the case in Argentina or more slowly. In either case, the consequences will not be nearly as catastrophic as they were for the Argentines as there will not be the widespread and immediate insolvency that spread across Argentina.

  •  Economics for dummies (4.00)
    People sometimes make things out to be harder than they really are.
       For instance, how does one get rich? By borrowing and consuming? Of course not. Everyone knows you get rich by saving and investing, and that you can't borrow and consume forever because you will run out of credit at some point.

        So why do people think that the rules for an individual don't apply to a nation?
        If you listen to many conservative economists and politicians they will tell you that our current account deficit is a good thing. Maybe if foreigners were all investing in factories and stuff it could be considered a good thing. But they aren't. They are buying our bonds. In other words, loaning us money. What are we using with this money? Repairing our infrastructure? Building factories and opening mines? Nope. We are using it to build bombs, buy SUVs and McMansions.

      This can't go on forever.

    "The sun is not yellow, it's chicken." -Dylan

    by gjohnsit on Sun Apr 10, 2005 at 11:15:33 AM PDT

    •  Let me gloss this a little bit (none)
      Wealth creation comes from the production of goods and services which is kick-started from the investment of savings.  The investment is paid back by the production of those goods or services.

      Expecting anything else winds you up in the la-la land of our current stock market where everybody expects to get rich by selling pieces of paper to each other.    

      "...[one] must still have Chaos in oneself to be able to give birth to a dancing star." Nietzsche

      by ATinNM on Sun Apr 10, 2005 at 04:58:52 PM PDT

      [ Parent ]

    •  You should see (none)
      how the Mogambo Guru says what you just did.

      In my opinion, the funniest economist on the planet.

      For example:
      - In last Thursday's Wall Street Journal, we read that the White House has a plan to divert $1 billion from the fund that compensates the victims of crime. If they were going to send that money to me, then of course I would be a big supporter of such a plan. Unfortunately, they are not, and you can tell by the way I am frowning and acting like a spoiled little brat that I am not happy about it one little bit. No, what they want to do is to use the money to cut the deficit, see, as if one lousy billion dollars is going to make a freaking tiny little teensy weensy dent in the budget deficit, which is expanding at a pace that will take us to, probably, close to a trillion dollars for the year! $1,000,000,000,000! This is just the freaking deficit, and it is 8 freaking percent of the damned economy! And this incomprehensible sum is just the deficit part of Congressional spending, which is money that they spend by borrowing, and thus putting us all deeper into debt as a country.

      Probably as a side effect of the medications I am taking so that I don't go completely berserk about the monetary insanity of the USA and wind up invading the Federal Reserve armed to the teeth and determined to "clean out that nest of mentally-ill rats and traitors to save America," I feel an instinctual drive to add a crude insult to my opening remarks. So let me add "the bastards!"

      And why would I blame the Federal Reserve, when it is Congress spending all this money? Because the damned Federal Reserve creates the money to get borrowed! If there were no accursed Federal Reserve acting like the brain-dead chumps that they are, and adhering to the ridiculous tenets of their precious New Age economic theory, as soon as Congress authorized such deficit-spending extravagance, the world economy would come unglued. Interest rates would go to the moon! Money would flee the country, and the economy would tank! This feedback mechanism is what used to keep Congresses from acting like insane morons. No longer.

      With a $2.2 trillion budget and a deficit of $1 billion deficit, then it seems to me, remembering my old school days where the teacher would ask me a question and I would reply that I did not know the answer, if you divide one of these numbers by the other one, you will show that the deficit is 46% of the budget! And, if the damn Treasury keeps borrowing money at this rate, the budget deficit as a percentage of GDP will then exceed 8% of GDP! Hell, Japan, far and away the world's biggest idiots as concerns monetary policy, is only running a budget deficit of 6.5% of GDP, and we American bozos are still "officially" at a budget deficit of "only" 4.4% of GDP, which is bad enough to cause old timers (which is defined in the Big Mogambo Dictionary (BMD) as "anybody who disagrees with the monstrous economic idiocy of constantly stimulating the economy and thus fueling inflation and don't start talking about inflation because that really sets The Mogambo off and he is liable to have a heart attack ('urk!') and plotz right here on the floor."


      The waves carry up little bits of knowledge and deposit them on the shore, and before you know it you've got Finland. Or whatever.

      by dougr on Sun Apr 10, 2005 at 06:46:52 PM PDT

      [ Parent ]

    •  My repub coworkers have figured out how (none)
      to solve this problem.  We should just write off all of our debt!  This is a brilliant idea - We'll just call up China and say "Fuck you, we're not paying you back"

      Why didn't I think of this when my credit card bill  got to high.

      When I heard this, I told them I would give them a years salary if they could get bush to even suggest this.

      "When your opponent is drowning, throw the son of a bitch an anvil." -- James Carville

      by sgilman on Sun Apr 10, 2005 at 08:02:01 PM PDT

      [ Parent ]

      •  They must be part of the credit card class... (none)
        The ones who think they are rich because they buy big SUVs on credit.  Because they obviously wouldn't think that way if they had any real money invested.  If we just default on our debt it's not just foreigners who will lose, a lot of US citizens will lose their money too.  

        In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

        by Asak on Sun Apr 10, 2005 at 11:14:52 PM PDT

        [ Parent ]

      •  The "I's" have it. (none)
        GOP = BIG.  Bigotry, Ignorance and Greed.

        The Ignorant seem to be the largest subset these days.

        Guess these bozos haven't noticed that we need 6% of our GDP to come back as loans to keep our boat afloat.  Wonder how long that flow will continue after we default?

  •  What we're going to need (4.00)
    When responsible people are in charge again, we're going to need to impose a windfall tax on the millionaires, billionaires, and large businesses that were the only beneficiaries of the Bush economy and tax cuts.  Someone should figure out how much more, on average, they would have paid under Clinton's tax regime and come up with a levy (again, only on the very wealthy) that gets most or all of it back.  THAT would go a long way to fixing our problem.

    "We can win elections only by standing up for what we believe." --Howard Dean

    by Jim in Chicago on Sun Apr 10, 2005 at 11:20:36 AM PDT

    •  Jeez. If I Were a Billionaire, I'd (none)
      want to make sure that such an election result would never happen.

      What to do, what to do....

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy....--ML King, "Beyond Vietnam"

      by Gooserock on Sun Apr 10, 2005 at 09:52:08 PM PDT

      [ Parent ]

      •  Well, we're not going to tell them (none)
        in advance.

        Howard Dean's biggest mistake of the 2004 campaign (pre-scream), was admitting that he would look at breaking up the media monopolies (on Tweety's show).  The next day, 8 newspapers published editorials dissing Dean (of course, not mentioning the real reason they had for suddenly turning on him), and his press coverage just went down from there.

        "We can win elections only by standing up for what we believe." --Howard Dean

        by Jim in Chicago on Mon Apr 11, 2005 at 08:24:28 AM PDT

        [ Parent ]

    •  Fuck taxing... (none)
      I think the country's gone way past that a little tax increase would help. I think we might have to see some drastic measures done to insure the economy.

      I'd like to see some of the industries that benefited from Bush to get nationalized, especially the defense sector and energy industry.

      Amateurs talk strategery, professionals talk logistics

      by Young Freud on Sun Apr 10, 2005 at 10:34:17 PM PDT

      [ Parent ]

  •  How to implement the solution? (3.50)
    Volcker gives a sensible, orthodox mix of policy changes governments around the world can implement to bring about a soft landing.  But as he correctly points out, there is no way to assure that these changes will all be put in place.

    The changes offer international governments a classic Prisoner's Dilemma:  any nation putting in place the bitter but necessary changes requred by an overall solution is disadvantaged disproportionately by those governments which do not.  The laggards share the overall benefit without paying their own price, thus reducing the overall improvement and penalizing the good citizens.

    Past experience, such as the 1970's and 1980's, is not promising in giving hope that governments today can coordinate changes in their policies reliably.  And the US is usually one of the freeloaders.  The main exception to this rule was provided by Volcker himself; the other by Bill Clinton with his 1993 tax increases.

    Journalism is yours! Help us support ePluribusMedia

    by Dallasdoc on Sun Apr 10, 2005 at 11:27:48 AM PDT

  •  Has it started? (none)
    This link to ABC News is an AP story from April 7, reporting that, nation-wide, house foreclosures went up 50% from February to March.  If next month's numbers don't show a bid drop from March to April, then I think we can assume the avalanche has started.

    "Skip a bit, brother Maynard."

    by scorponic on Sun Apr 10, 2005 at 11:39:48 AM PDT

    •  Seasonality? (none)
      How does this compare to previous years? The standard way of looking at this would be to compare March 05 vs. March 04, and Feb 05 vs. Feb 04.
    •  I am not sure how much value (none)
      I would place in data from a site that specializes in foreclosure real estate.

      This article

      which draws on data from the mortgage bankers assn draws a different conclusion.

      I should also point out that both bankruptcy and foreclosure are generally viewed as lagging indicators of the economy.

      •  You are right... (none) question the reliability of the source of the information, although I'm not so sure the organization has a compelling interest to exaggerate the foreclosure rate.  Perhaps the opposite, since an abundance of foreclosed properties could mean that its help in finding foreclosure opportunities is not worth paying for.  Also, an organization that specializes in connecting investors to foreclosed properties would, at the least, probably have very good access to the data.  Finally, the article you link to discusses the annualized foreclosure rate as of the end of December 2004.  The article I link to discusses the large spike in the foreclosure rate from February to March 2005.

        Having said all that, it's just one piece of evidence to consider.  Like I said, if the foreclosure rate continues to hold steady or increases, from March to April 2005, it might be time to start concluding that the housing market is in serious trouble.

        "Skip a bit, brother Maynard."

        by scorponic on Mon Apr 11, 2005 at 01:13:09 PM PDT

        [ Parent ]

  •  Big Drop, I mean (none)
    The article highlights that this is a huge and unprecedented increase in the foreclosure rate.  Hold on to your seats, the ride's about to start.

    "Skip a bit, brother Maynard."

    by scorponic on Sun Apr 10, 2005 at 11:42:09 AM PDT

  •  What to do? (none)
    Help!  What should this schoolteacher do to make sure that she has enough money to retire on?  It seems so unfair.  I keep consumption way down.  I have no debts except my mortgage (and that is less than half what the house is worth).  But everyone else's profligacy and spending sprees might bring the economy down so that all the stocks and bonds I have socked my money away in will crash, or go down.    Maybe I should just adopt a "Titanic" mindset and spend it while its here to spend.
    •  Check out Everbank (none)
      Everbank is a specialty bank that sells investment vehicles (CDs, etc.) denominated in foreign currencies.  If the dollar crash comes, it's probably the safest investment to hold, besides guns, gold and canned goods.

      "Skip a bit, brother Maynard."

      by scorponic on Sun Apr 10, 2005 at 12:01:15 PM PDT

      [ Parent ]

      •  speaking of... (none)
        guns, gold and canned goods, does anybody know of any websites where progressives are coming together and developing a survival plan just in case our economy takes a nose dive (be it short or long term)?  I'd like to start thinking about what I should be doing and connecting with other people who'd like to be prepared if things go under.
        •  One site (none)

          You have to get a yahoo ID by registering with yahoo first.  Then you can join ROE2.  It's the best discussion group I've found so far for exactly what you're looking for.

          The basic strategy is to incrementally downsize your 'footprint' yourself before it gets downsized for you.

          The waves carry up little bits of knowledge and deposit them on the shore, and before you know it you've got Finland. Or whatever.

          by dougr on Mon Apr 11, 2005 at 06:22:02 AM PDT

          [ Parent ]

    •  Or... (none)
      ...sell it all, retire and go buy that little country villa in Tuscany/Southern France/Greece, etc. you may have been dreaming of.

      "Skip a bit, brother Maynard."

      by scorponic on Sun Apr 10, 2005 at 12:07:13 PM PDT

      [ Parent ]

    •  Same boat (none)
      As a teacher, I feel your pain. Believe me!

      I have minimal money in stocks, etc, and absolutely don't want more, as what I have has done ... nothing. Zero. Zilch. Nada. They've sat like dead weight for 2 1/2 - 3 years now. I keep these investments just to remind me, should I be tempted to invest big time in the stock market.

      Most of my mney is in a fairly high interest bearing savings account. I have the account set up so that a certain amount of money is automatically deposited into it EVERY WEEK, no matter what. I'm staying in dollars for now ... but that might change.

      My biggest investments right now are in my home, which I own free and clear. I'm setting up rainwater catchment systems now, so I won't be paying to water my gardens.

      I'm bigtime on gardens. Just planted three more grape plants today --- so I have a fair grape thing going. I have a blueberry patch and elderberry plants will be going out next week. I have thirty tomato plants which will go in the ground in a couple of weeks. Beans and melons are started. Etc. Through composting, square foot and lasagna style gardening, and raised beds, I get pretty good yields.

      I've also worked quite a bit on energy --- even caulking makes a difference. Curtains even, even though they go against the current fashions of wide open bright windows. But they sure cut down your heating and cooling bills.

      Etc. etc. etc.

      Each little thing adds up. I can't tell you about investments, as I'm anti-stock market right now and still debating the advisibility of going out of dollars. But you should set up a savings account which automatically receives money every week, even if that amount is only $10-20. It adds up.

      Get rid of expensive habits. If you smoke, quit. If you have to have a nottle of expensive wine every night, cut it down to once a week.

      Weather proof your home. Use energy efficient bulbs. Plant gardens with food, not just flowers.

      And coast whenever you can when you have t drive.

      It's how I'm making it on a salary which would make most people at Kos give up and throw themselves out the window.

      •  I'm a teacher too, (none)
        and I am trying to get rid of my real estate investments before the market drops.  From my view, it has dropped already.  

        I think the economy in general has been bad for a while.  I have a friend whose husband worked in NYC - he was laid off last year, and took about 4 months to get another job.  Republican that I was, I told her that, of course, the economy was excellent, and her husband was the exception.  How she didn't punch me in the face, I'll never know. Much forbearance she had.

        Point is, regular middle class people like them have felt it.  They were going to sell their big, old house and buy a new one for 150K more, but the big taxes and bigger mortgage payment scared them after what they had gone through. Another friend had a big, gorgeous Victorian (5000 sq ft) for sale for about 500K, ended up taking 379K to get rid of it.  The new owners have had it for one year, selling it for 550K - no buyers yet.

        So I don't know where these real estate speculators are, but I don't think they are in NY.  

        •  The market ... (none)
          has already collapsed here. Long ago.

          And yes, the economy is already bad, at least here. I can't figure out why they're not talk about inflation --- what used to cost me $15 at the grocery, for example, now costs $25-30.

          And those prices will keep going up because of gas.

          •  Groceries ar up here (none)
            Produce and oranje juice (in cartons) have jumped noticably in the past month. That's mostly what I buy regularly so I'm not sure about the rest of the supermarket. Meat and fish seem stable.

            I think the higher gas prices are feeding the increases...not cheap to truck this stuff up to Seattle.

            Things to do today: 1. retreat; 2. retrench; 3. lower expectations

            by Joan in Seattle on Sun Apr 10, 2005 at 10:40:57 PM PDT

            [ Parent ]

            •  I think... (none)
              That's because OJ, made from Oranges, is a product of a commodity that is traded on an international market (oranges) like Coffee or some other fruits (pineapples, for instance) etc; that aren't grown inside the US. I remember the little signs inside the coffee shops around here not too long ago, when the big slide first began, informing patrons about how their coffee was becoming more expensive. I took it not as a tragedy, because I don't drink Coffee often, (I normally ordered Italian Soda there - damn good!) but a little "hm, told y'all so" to the snooty "daddy and mommy voted republican so I did too" what's the term... Yuppies? (I guess, would be close enough, except these kids are not self-made)who were blabbing on their cellphones about how coffee was becoming so expensive they wanted more money sent to them. It was funny and sad at the same time, but, hey, I voted Kerry. VOTE "D" FOR CHEAP COFFEE!!

              Religious conservatives are motivated by the suspicion that someone, somewhere, is having fun. - Badtux @ K5

              by BullitNutz on Mon Apr 11, 2005 at 01:41:21 AM PDT

              [ Parent ]

      •  You must be invested pretty poorly... (none)
        If you've really gotten no return from your investments in 3 years, then your investments are crap.  Starting in 2003 the market recovered and it went up last year as well.  Did you buy at the market peak?  Based on your time frame you should have missed the worst part of the bear, so I have no explanation as to how your investments have made no money over that period of time.  

        In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

        by Asak on Sun Apr 10, 2005 at 11:24:23 PM PDT

        [ Parent ]

  •  The perfect storm (4.00)
    Yet, under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it.

    Volcker was talking about economics, but he might just as well have been discussing the environment or the link between food and oil or some other looming disaster that doesn't come to mind just now.

    Separately, each of these problems is probably preventable, given strong leadership, vision, time, and (cough) perhaps some sacrifice. But given how busy people are with the Pope's funeral, and how busy the Rethug leaders are with their plans to take over the world, I fear that we'll bumble along until several of these disasters hit simultaneously.

    And when the hungry Sheep look up and cry, "Why weren't we warned about this?" The unsatisfying answer will be, "You were."

  •  i, by far, am certainly not an expert; however; (none)
    am interested in learning more.

    I read with great enthusism to learn.

    I think other countries will be happy to co-operate with us once  we take our arrogence off the table for trade and currency.

    This administration is full of the said above.

    This world is interested in getting along with others, if we tried to get along with them.

    This also has effected the trade we carry on on a daily basis.

    Yes, I do believe that the countries holding our t-notes for debt will get tired eventually of our measures of negoation.  It is not constructive in the least.

    As I see it today, we have only one change to get this right and then start to repair the damage and then even it will be years before we see much of recovery.

    Everything this administration touches turns to defication.  Plain and simple.

    I am holding no credit cards except one for gas and I hardly use it and I am thinking of letting it go.  Why pay for something I do not use.

    I have a debit card I use for paying for things instead of credit cards.  That way I willnot aquire any interest against me.

    I am saving and will continue to save as long as I have a job.

    This may not be sound thinking, but I am just one common ordinary citizen caught up in many of the policies of thsi nation that have gone astray of common sense.

    My morgage is fixed and I am thinking of investing in something, just do not know what.

    I have a 401k that is not doing well and leaves me with ulcers, but my company will not allow me to withdraw it unless I quit working for this company.  When I need a loan I use it to do what I need it for,money, ie a loan.  So when I pay it back, I pay myself for house repair etc.

    I do not which way to turn in my life!  I am seriously afraid to invest now for I do not know what to invest in that will assure me of no losses.

    I think a lot of Americians are like me.  SCARED, period!

    •  Credit cards (none)
      If you pay what you owe in total each month they are okay.  Mine has no fee.  And I get frequent flyer miles--so many I can hardly use them.  I have the total credit card balance due automatically deducted from my checking account each month.  Now I just have to make sure I have enough in my checking account.
  •  Passing the buck (none)
    By some estimates, the dollar is overvalued by 40%, which puts a huge weight on the US trade deficit. In Euroland, the deficits are minor by comparison and interest rates are higher. Europe is acquiring a greater share of world trade. In OPEC there is a move to trade oil in the Euro. There are even conspiracy theorists who believe that Iraq's move to the Euro in 2000, for oil deals, was the root cause of their country being invaded by America - as a warning to others.

    In the Middle East, Russia, Central Asia, and Africa, the battle for the Euro is in full swing. Iran, Malaysia and Indonesia seem very pro-Euro for oil pricing. If the Euro becomes established as a durable world currency, a global financial leverage against the dollar will be set in train. The global dollar is the soft underbelly of US power. With enough enemies - and the US is acquiring more every week - a concerted effort could bring down the whole fragile edifice. Not even the financially unsustainable US military-industrial complex could continue to rule, with the dollar demoted.

    With a strong Euro in your pocket, you will be able to buy much more abroad for your money. It will be harder to sell your more expensive products, but that will hasten even greater efficiency and your transition into a fully post-industrial economy. Your oil-based energy sources will be more secure. We will see a lot more trade with Russia and China. China, of course, means 2 billion consumers in an economy growing by leaps and bounds.

    All the main players in this coming revised world order, are very old civilisations that have donated to the world the very foundations of our society. Some have fallen by the wayside, but could flower again, as China is blossoming now. All of them increasingly resent the 230 years old upstart in the New World, with a Constitution written by slave owners. All of them hope that America will soon go home and put its own house in order, before lecturing to the rest of us.

    The coming collapse of the dollar as a world currency will bring far-reaching changes in US society, and, in fact, to Capitalism and the global monetary system.

    •  Good point (none)
      The best policy for Europe would be to up the ante on its investment in higher education and university research.  The pay-off will take time, but it will surely come.  If they could only pass some of the subsidies to farming over to the educational sector, Europe would be unbeatable in the medium term.  It's going to be a while before the U.S. is in a position to do serious long-term public investing.
      •  I agree, except.... (none)
        China will soon develop a voracious appetite for our educators!

        However it will have to pay them plenty - though It's a beautiful country, it is also a pollution nightmare.

        If our brains were simple enough to understand, we'd be too stupid to know what a brain was.

        by sven triloqvist on Sun Apr 10, 2005 at 03:28:04 PM PDT

        [ Parent ]

  •  Greenspan's rep another Bush victim (none)
    EVERYONE associated with Bushco loses his/her good name.  Has one person gained stature through association with Bush?  Republicans continue to carry Bush's water, and they are diminished in the process (though probably richer!).  Greenspan is another example.  He started out after the Clinton years with a good reputation.  It has steadily eroded.  Now, people shrug when they talk about his departure.

    My Liberal Values: a clean earth, universal access to health care, human and civil rights, a broader distribution of wealth, and a global perspective

    by Pellice on Sun Apr 10, 2005 at 01:48:18 PM PDT

    •  Greenspan is (none)
      and always has been a partisan political hack.  The "sound fiscal policy" preached during the 90's were just a cover to tie the hands of a Democratic President.  Look at how quickly he abandoned that rhetoric when his boy W* got in.
  •  What about the stock market retirement funds (none)
    Please comment.

    I am an economic functional illiterate, but I do have good intuition.

    This is my problem.  Everybody and his brother has mutual funds and IRAs set up for retirement savings. With this influx of $$, the market has soared, topping 10,000.

    What happens when massive numbers of baby-boomers start pulling their money out of the market to pay for their retirement? Who is going to balance out this global loss in stock investment? And if my money is tied up in IRAs and MoneyMarket accounts as retirement vehicles, won't I get screwed since I am post boomer? By the time I retire, what will my accounts be worth?

    I see this as a balloon with the air leaking out (flying around the room, whapping the wall).

    DO you think this is why Bush is pushing personal retirement accounts? Either it would shift the market equilibrium so the retirement drain is not so bad or it would shipwreck the poor suckers who go for the bait.

    "They that can give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

    by digital drano on Sun Apr 10, 2005 at 02:15:28 PM PDT

    •  good question! (none)
      I have thought of this as well, and if the $ value goes down will that make all of our $'s worth less and less, no matter where it is put?
      •  Correct (none)
        If the dollar goes down then everything priced in dollars goes down.
           What you need to do is to move your assets to things that are not based on dollar debt. That means foreign currencies, commodities, or precious metals.

        "The sun is not yellow, it's chicken." -Dylan

        by gjohnsit on Sun Apr 10, 2005 at 03:30:43 PM PDT

        [ Parent ]

        •  I've put (none)
          about a quarter of my IRA into an international mutual fund. I thought of this as a way to hedge the fall of the dollar, but I don't understand if if will really work if the shares are sold in dollars. Anyone know?
    •  I'm illiterate, too (none)
      My plan is to take everything out of the market now.  I'm tired of supporting corporate America (even through socially conscious funds) and gambling with the big boys on Wall Street who always seem to do better than me.  I'm putting everything into insured, fixed rate CDs.  Yes, it's stodgy, but at least I won't lose money, as I have done in the market.  I'm doing this with college savings (8 years out) and retirement (20-25 years out).... no longer buying the "buy and hold" mantra since I am not sure anyone can really predict what will happen to equities when housing prices drop and oil prices rise.

      Any wise suggestions/alternatives to my plan are welcome!

      •  CDs? (none)
        Did you know that Everquest bank (mentioned elsewhere in the thread) offers CDs in Euros?

        While currency speculation isn't a great idea with nest-egg money, the rules change when holding dollars practically guarantees that they will lose purchasing power.

        As the one banker I know of around here (Jerome a Paris) says on this thread:
        4 years ago: 4 dollars = 5 euros
        now 4 dollars = 3 euros.

        I used to run a small e-commerce site for a Dutch musician... when her album as purchased through a US CD-on-demand vendor dropped from about 20 EUR to 15 EUR in a year without the US price changing a penny, I sort of had to notice. That was last year.

        Holding dollars is a financial bet in favor of George Bush and the corporate CEOs not only knowing what they are doing, but are doing what they do in the public (i.e. YOUR) interests rather than their own.

        The phrases "wrong end" and "sucker bet" occur to me.

        But this is not advice. In terms of preservation of your capital... become economically literate NOW. You have to figure out what the best solutions are for you, and doing this requires learning the game and the territory.

        If you'd like to get a significant fraction of the money you're putting into those financial instruments out when you actually need them, you have to become clued. Things are too totally screwed up for any other advice to make sense, you can't depend on a rising economy anymore to cover non-optimal decisions.

        Looking for intelligent energy policy alternatives? Try here.

        by alizard on Mon Apr 11, 2005 at 02:51:07 AM PDT

        [ Parent ]

        •  Thanks (none)
          I'm not sure gambling on euros makes more or less sense than gambling on dollars.  So much seems unpredictable now, with the exception of a downward trend, that I'm really not sure what to do in order to get and keep a sense of security.  Sigh.
    •  You are correct (none)
      Stock and bond values have nowhere to go but down simply because millions of baby-boomers will be selling stocks and bonds to pay for their retirements.
          But it gets worse than that. The fact is that if you sell a respectable amount of stock or bonds it will push your income up to a point that your social security will get taxed.

      "The sun is not yellow, it's chicken." -Dylan

      by gjohnsit on Sun Apr 10, 2005 at 03:28:58 PM PDT

      [ Parent ]

      •  The front end of the boomer generation (none)
        is only 59 years old, and they have been notorius under savers. They won't be retiring anytime soon and when they do retire, they won't be selling their equities all at the same time.
        •  They don't have to sell all at the same time (none)
          A steady selling from the differing ages of boomers will create a constant downdraft on stock values.
            It won't take long before stocks going up are the exception, not the rule.

          "The sun is not yellow, it's chicken." -Dylan

          by gjohnsit on Mon Apr 11, 2005 at 01:45:42 PM PDT

          [ Parent ]

    •  Japan's demographics were 10 years ahead of the US (none)
      in terms of aging population.  In fact, the US stock market has tracked that of Japan - except with a ten year lag.  Since 1990, the Japanese market has fallen two-thirds,  including a few dead cat bounces, due to the aging trend.  The US market has eerily tracked the Nikkei chart with this ten year lag.
  •  Gold has no risk (none)
    Its price wanders all over the place.  Some of you may recall the Hunt brothers trying to launch a silver backed note, and what the price of gold and solver did at that time.
  •  Thanks to Bonddad and others... (none)
    Thanks to Bonddad and other economic guru types that post here at Kos, I'm a whole lot less illiterate that I was a year ago.  

    We are semiretired and our investments are mostly bondfund (short term) types of stuff with about 25% in index funds.  We have no debt other than mortage and one home equity ARM that is used "only" for financing vehicles.  I'm in the process right now of using money from my parttime job to try and pay that ARM down.  

    We are in pretty good shape, even if there is a crash.  But our health insurance has significantly gone up in the last five years.  I'm worried that my husbands company that he is retired from will stop offering it.  (We pay 50% of the premium, so they aren't as bad off as many companies regarding retiree's health care.)  

    And I worry about my boomer kids.  And I worry about my mother since our new Gov is whacking medicaid and she will probably lose her aide and nurse services that keep her out of a nursing home.

    •  Yeah, we have a great aunt (none)
      who was told when she went into the $10,000 a month nursing home, that once they bled her dry, medicaid would kick in and pay the expenses for the rest of her life.
      I would hate to see her thrown out in the streets penniless.
  •  Free Trade Is NOT Free (none)
    apparently it requires borrowing about $2 billion per day. Doesn't it?
    •  Well ... yes and no. (none)
      Or no and yes.  Or no, yes, and maybe.

      The US is borrowing money for what is called the "current account" or the net amounts for current consumption, current investment, and current borrowing to cover the Federal deficit.

      How "Free Trade," something of a misnomer, affects  and/or effects the current account is under discussion (Read: Shouting Match) by economists of different schools of thought.

      "...[one] must still have Chaos in oneself to be able to give birth to a dancing star." Nietzsche

      by ATinNM on Sun Apr 10, 2005 at 05:37:25 PM PDT

      [ Parent ]

  •  I don't trust Volker's opinion at all! (none)
    While I agree with some of what is written here, Volker's actions as head of the Federal Reserve were not right at the time, and history has so shown.  He brought the world economy to a halt, forced intererst rates to levels never before (and hopefully never again) seen, and brought new construction to virtually zero.  

    As many said at that time, they had lived through two depressions:  The Herbert Hoover depression and the Paul Volker depression.  

    While I will not say our econonmy is on the right track, and believe that Bush & Co.  have royally screwed things up, what Volker says about the economy are suspect.

    •  You could not be more wrong (none)
      Paul Volcker was appointed by Jimmy Carter and was without question one of the best Federal Reserve Chairman ever.

      It was Volcker who had the courage to keep interest rates high in the early 1980s that broke the back of inflation.

      Price stability is the Fed's number one job, and he did what no other Fed Chairman has been called on to do, he stopped inflation, dead, in its tracks.

  •  Federal Reserve NOT owned by US government ?!?!? (none)

    Thomas Jefferson, declared, "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

    Did Jefferson have a crystal ball when he spoke these words? Has a private bank taken control over our nation's money supply?

    "The following is a conversation with Mr. Ron Supinski of the Public Information Department of the San Francisco, Federal Reserve Bank. This is an account of that conversation reconstructed to the best of my ability from notes taken during the conversation on October 8, 1992.

        * CALLER - Mr. Supinski, does my country own the Federal Reserve System?
        * MR. SUPINSKI - We are an agency of the government.
        * CALLER - That's not my question. Is it owned by my country?
        * MR. SUPINSKI - It is an agency of the government created by congress.
        * CALLER - Is the Federal Reserve a Corporation?
        * MR. SUPINSKI - Yes
        * CALLER - Does my government own any of the stock in the Federal Reserve?
        * MR. SUPINSKI - No, it is owned by the member banks.
        * CALLER - Are the member banks private corporations?
        * MR. SUPINSKI - Yes
        * CALLER - Are Federal Reserve Notes backed by anything?
        * MR. SUPINSKI -Yes, by the assets of the Federal Reserve but, primarily by the power of congress to lay tax on the people.
        * CALLER - Did you say, by the power to collect taxes is what backs Federal Reserve Notes?
        * MR. SUPINSKI - Yes"

    •  The Federal Reserve (none)
      Is a private corporation whose chairman is selected by the Senate and 100% owned by:

      Who Knows?

      There are purported shareholder lists floating around but given the wing-nuttery of the people who are floating those lists (and the Jewish names prominently displaced) I have serious - ha! - reservations as to accuracy.

      "...[one] must still have Chaos in oneself to be able to give birth to a dancing star." Nietzsche

      by ATinNM on Sun Apr 10, 2005 at 10:19:50 PM PDT

      [ Parent ]

  •  What Ever Happened to John F. Kennedy ? WHY ? (none)
    On June 4, 1963, a little known attempt was made to strip the Federal Reserve Bank of its power to loan money to the government at interest. On that day President John F. Kennedy signed Executive "Order No. 11110 that returned to the U.S. government the power to issue currency, without going through the Federal Reserve. Mr. Kennedy's order gave the Treasury the power "to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury." This meant that for every ounce of silver in the U.S. Treasury's vault, the government could introduce new money into circulation. In all, Kennedy brought nearly $4.3 billion in U.S. notes into circulation. The ramifications of this bill are enormous.

    With the stroke of a pen, Mr. Kennedy was on his way to putting the Federal Reserve Bank of New York out of business."

    How Convenient: "After Mr. Kennedy was assassinated just five months later, no more silver certificates were issued."
    Further: Abraham Lincoln's Monetary Policy, 1865
    "No duty is more imperative for the Government than the duty it owes the People to furnish them with a sound and uniform currency, and of regulating the circulation of the medium of exchange so that labour will be protected from a vicious currency, and commerce will be facilitated by cheap and safe exchanges."
    FInally: "A number of "Kennedy bills" were indeed issued - the author has a five dollar bill in his possession with the heading "United States Note" - but were quickly withdrawn after Kennedy's death. According to information from the Library of the Comptroller of the Currency, Executive Order 11,110 remains in effect today, although successive administrations beginning with that of President Lyndon Johnson apparently have simply ignored it and instead returned to the practice of paying interest on Federal Reserve notes. Today we continue to use Federal Reserve Notes, and the deficit is at an all-time high.

    The point being made is that the IRS taxes you pay aren't used for government services. It won't hurt you, or the nation, to legally reduce or eliminate your tax liability."
    What ever became of Lincoln and Kennedy ???

  •  This diary is the champion (none)
    example of misunderstood economic concepts, wrongheaded ideas, and bad proposals. And the fact that this discussion is going on in what is supposed to be THE partisan Democratic blog is very disturbing, because it exposes that core Democratic supporters lack a standardized model of what should be done about the economy.

    Why is this community so unable to express agreement about the Democratic economic platform?

    •  is this a trick question (none)
      For the most part, the so-called democrats have the same boss(the bankers) as the so-called republicans. Forget their titles, what are the politicans doing for us, the U.S. citizens ???
      Bankrupting America for the elite to buy America for 5 cents(or less) on the dollar ??
    •  Nail..... head..... LOL (none)
      asdf, I'm with you all the way. And I hate to say it, but this isn't the first time I've had this feeling on kos. Trying to take part in a discussion ostensibly about the energy crisis, I waded through eight screens of people arguing about how to say "Happy Birthday" in French. Here we have a discussion on the health of the U.S. economy being hijacked by people trying to sell gold bullion while bitching about Nixon's price controls.


      Why this happens, it's complicated. Part of the problem I think is that many liberals simply have a knee-jerk "money = bad" response and remain willfully ignorant. You could also point to general financial illiteracy nationwide -- it is, after all, technically illegal to teach personal finance in school, and it's tough to pick up on the street. And the Democratic leadership doesn't always seem to stay "on message" economically, apart from pointing out the obvious flaws in Dear Leader's policies.

      Bit of a circle-jerk problem at work as well, I should think.

    •  you'd rather Democrats won Congress and... (none)
      because it exposes that core Democratic supporters lack a standardized model of what should be done about the econo

      The time to find this out is before the GOP screws the pooch so many times that Wall Street cuts them loose and we wind up with Democrats in control of government again. I think the GOP is very close to that point now.

      This is the best possible time to discover that there is a problem. How can we tell out leadership what they're supposed to be doing when there isn't a consensus among us?

      This is the kind of place where consenus is supposed to be thrashed out. The alternative for Democrats is to wait for the DLC to do it for us, and the odds that they'll come out with a better idea are pretty close to the idea that they'll come out spontaneously with the right answer to our energy problems (expressed either as "peak oil" or "global warming")

      So if you've got better ideas, start thrashing.

      Looking for intelligent energy policy alternatives? Try here.

      by alizard on Sun Apr 10, 2005 at 08:58:45 PM PDT

      [ Parent ]

  •  Where Would we be ?? (none)
    What if JFK Weren't Assassinated?
    Where Would We be Today?
    Interestingly: "President Lincoln needed to raise money to fund the Northern Army. There are three ways for government to raise money. Government can tax the people, borrow the money or government can print the cash and spend the cash.

    Lincoln decided to print United States Notes to pay for the war. This way he could avoid taxes and borrowing. Lincoln printed the cash and used the cash to pay for the war. There was no need for taxes or debt.

    The bankers wanted to profit from the war. The bankers wanted Lincoln to print the cash, give the cash to the bankers for the cost of printing the money. Then the bankers return the cash to the government as a bank loan and require the taxpayers to pay a tax to repay the principle plus interest to the bankers.

    Honest Abraham Lincoln said NO to the bankers and was assassinated. Upon his assassination the bankers got their way.

    Which Brings us to the Federal Reserve Act of 1913 and the IRS

    The bankers got their way again in 1913, when the Federal Reserve Bank and IRS taxes became law. They needed the new IRS tax to pay the bankers the principle and interest on the money they were going to create and loan to the government. The IRS tax puts fear into the people to keeps them in line.

    The government prints a $100 bill called a Federal Reserve Note. The bank gets the $100 of cash for 3½ cents. Then the bank lends the $100 back to the government. Now the government has a $100 debt and YOU must pay IRS taxes to repay the bank the $100 plus interest."
    Back to JFK and Eliminating the National Debt

    "JFK President John F. Kennedy was simply following President Lincoln and President Andrew Jackson. By JFK issuing the Kennedy dollar, United States Note, the bankers could not get the cash for free and lend it back to the government and profit from the old banking system.

    JFK planned on printing enough United States Notes, like President Lincoln, and pay off the national debt and thus ending the personal IRS taxes with no new taxes.

    JFK's plan to print United States Notes, cash, would have ended the privately owned banking monopoly called the Federal Reserve Bank."
    Additionally: The Politician's Reward

    "If the politicians are loyal to the bankers, they are richly rewarded, if they are not loyal they are kicked out, like Congressman Traficant, or killed. The banker's money controls who is elected and the laws passed and heavily influences the media who needs the bank loans to stay in business."
    Finally: And If JFK Had Lived...

    IF President Kennedy had lived, we would be debt free and have no IRS taxes, and no other tax to replace the IRS tax.

    If he lived most likely we would not have been involved in the Vietnam war. Banker's need a war to run up a deficit and profit from the money creation lending program.

    History shows that when Europe started this banking system, wars immediately started and bankers lent money to both sides of the war. The banker's money controlled Kings of old, like the IMF controls countries today.

    JFK's plans would have stopped the bankers from controlling congress and the President of this great nation we love. JFK wanted to return the control back to the people."
    SHOW ME THE MONEY !! NeoCON chant !!

    •  Please cite your sources (none)
      This is all curious enough, and could even be true. But it's so badly written it's hard to believe. Where did you pull it from? Where's the historical evidence to back it up?
      •  ooops the link (none)
         a touch more from the article: "Proud Admission from a Top Banker...

        Read Tom's book to learn how a top banker admitted that bankers control congress by creating money and using the money to fund the elections of both Republican and Democrats.

        Boasting, the top banker told Tom that if any politician does not cooperate with the bank and pass the laws the bankers want passed, that the bankers will make an example out of the politician and smear their name throughout the media and the bankers would heavily fund the politician's opponent who would be loyal to the bankers.

        No politician would dare oppose the bankers.

        This top banker explained to Tom how the banker's money controls the media by advertising and loan money and direct ownership of the media and how the banks control the judges and law enforcement.

        Then the banker said, "If the American people ever copy a brochure exposing this secret and the masses of Americans learn the truth, they would hang the bankers for what we did to them - and they would vote to follow the US Constitution.

        Then he laughed and said, the American people are too stupid to figure out what we have done to them."

  •  The debt won't be honored (none)
    As Bush has pointed out about US government debt, it's just "worthless IOU's." So consider a scenario like: China would pay a great deal to smoothly get Taiwan back. The US quietly signals for China to go in, then uses that as an excuse to impose sanctions on China including "postponing" (forever) payment on the trillions in US bonds China holds. Since neither Japan nor Korea contemplates doing the equivalent of invading Taiwan, they continue to buy our bonds - the unstable world of Chinese aggressive expansion will actually drive more investors to the safe harbor of the dollar. China gets Taiwan, we get out of a large portion of our debts, and Wal-Mart moves its manufacturing to India and Bangla Desh - maybe even Burma. Everybody but the Taiwanese is happy. Sort of.

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