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The Strong Dollar Illusion
- Text size
Peter Schiff
321 Gold
Aug 18, 2008
Economists who now see American troubles spreading around the world are predicting that foreign central banks will ignore the gathering inflation threat and follow the Fed down the rate cutting path. Similarly, they argue that since the downturn began here, the U.S. recovery will likely be underway while the rest of world is still decelerating. These assumptions have prompted a rally in the dollar, a sell-off in gold, commodities and foreign stocks, and have cast doubts on the ability of foreign economies to “decouple” from the United States. Investors should not take the bait.
America does indeed pose a global threat, but not for the reasons these economists suppose. Foreign economies are suffering not because Americans have slowed their voracious spending, but because they are defaulting on hundreds of billions of dollars of existing loans underwritten by lenders around the world.
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The conventional wisdom is that foreign economies depend on Americans to buy their exports. This is false. The global expansion of the past decade has created new demand everywhere, and people and businesses in all corners of the world are spending. However, in America, spending has largely been achieved through a massive vendor financing scheme. Foreign supplied credit has allowed Americans to continue buying, even while American income and savings have dropped. As this credit goes bad, the losses are landing on the bottom lines of foreign financial firms. In other words, the global pain is not resulting from American contraction but from having financed our preceding expansion. This is a critical distinction few have been able to make, and it is vital to appreciating the decoupling that has already occurred beneath the surface.
The current losses that banks in Europe and Asia are now suffering are real, but future losses can be avoided by suspending future lending to Americans. Shutting off this credit will of course torpedo the dollar, but that is precisely what must occur. By allowing the dollar to drop to its natural, unsupported level, not only will the American caboose be decoupled from the global gravy train, but the rest of the cars will move along the tracks much faster. Absent the U.S., there will still be plenty of consumers to buy what is produced, and plenty of investment opportunities for those with savings. Rather than dragging the global economy down, such a development would actually un-tether it.
On the other hand, left to its own devices, the American economy will implode. There will be fewer products for American consumers to buy and very little savings for anyone to borrow.
Some foolishly believe that many of the world’s problems result from dollar weakness, and that pushing the dollar back up would be good for all. For example, since the weak dollar is contributing to the rise in oil prices, a stronger dollar should help bring prices down. However, if foreign governments weaken their own currencies to push the dollar up, they will simply succeed in bringing oil prices down for Americans. Oil prices will go up for their own citizens. This can’t be an attractive bargain for any European or Asian political leader.
The weak dollar is merely a manifestation of substantial structural problems underlying the American economy. Unfortunately for us, the solution to those problems, as well as the global economic imbalances, can only be found in a weaker dollar. Efforts to artificially prop the dollar up will only exacerbate those imbalances, and make its ultimate fall that much more severe.
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August 19th, 2008 at 11:18 am
good article, saying like it is in easy term.
August 19th, 2008 at 11:23 am
http://www.youtube.com/watch?v.....ature=user
August 19th, 2008 at 11:35 am
PROPAGANDA -1928 BERNAY
convince the people whatever u want by controlling all the media and repeating it over and over
August 19th, 2008 at 12:14 pm
Thank you for posting this! One of the things we have learned from most of the standard media financial pages is that most of the “reasons” they provide for what is going on economically & financially simply do NOT add up. When Mr. Schiff warns us not to take the bait, please take heed. Also Study This: the sell-off in commodities, for example. (Notice how gold, the age-old storehouse of wealth, is considered ‘just another commodity’! – there are some things that do semi-eternally set it apart, like its tendency to endure, to be preserved instead of consumed). If you would like some interesting gold news, log onto kitco.com – if memory serves me correctly, they had a newslink that discussed very recent “central bank” sales of gold, literally, tons of gold…Hmmm – Seriously, are these “sales” alone the sole reason for the price drop?? or, Is a nice discount being engineered for those with the “right amount” of cash? If there is a “seller”, there is also a buyer ? Buyers with cash, and lots of it. Sovereign Wealth funds, by any chance? Believe this now and later: these buyers of gold are buying gold to make a tidy profit off of it, and yes, we are talking the wealth of nations here. Sure there was a drop in the price of petroleum (and after the heights it recently reached it is still no bargain, and a LOT of truckers went bankrupt, and this is an election year, also, and winter is on its way, and the projected VERY high prices of heating oil are already a topic). Meanwhile, the housing market is still “seaching for a bottom”. Believe your own eyes, and see all of the homes all over the place right in your own area that are for sale. They are not selling very quickly, are they? For all the talk about a “recovery” being “just around the corner”, please also beware. How is “recovery” defined? More spending? On what, exactly? More importantly, as Mr. Schiff talks about, with whose money? This is just one thing that the high powered economists stubbornly do not address: for years, millions of jobs have been getting shipped overseas, and they have been replaced with very low paying jobs – jobs that do not provide a real standard of living, or the ability to purchase (let’s dont talk “finance a home”, le’s talk PURCHASE ) a home. I fear that any real recovery is going to be years off, but in the short-term as well as the long run we can really help ourselves by weaning ourselves from consumerism as much as we can.
August 19th, 2008 at 12:14 pm
It feels good to read something that makes sense. CNN would report massive loses in all sectors and then say the economy is good. The economic kickstand has been pulled!
August 19th, 2008 at 12:15 pm
I enjoy Peter Schiff’s analysis and have many audio/video clips from him on my blog http://cheapogroovo.vox.com
August 19th, 2008 at 12:30 pm
Wasn’t the collapse of the financial markets deliberatly planned years ago. Isn’t that one part to be played for a one world government, and the chip, to be put into place where people will gladly accept the nwo. Isn’t this one of the false flags that they have lined up to put people in compliance. Or have I studied the wrong subjects on the nwo.
August 19th, 2008 at 12:41 pm
Great Article! A lot of the TV Land nuts will be watching the Hitler propoganda machine. I can hear Mom now. Honey, Did you hear Wolf Blitzer? The Dollar is coming back! Isn’t that great we can buy Molly @ new sorority pin for Christmas.
August 19th, 2008 at 12:57 pm
Americans need to save more and spend less. Did anyone here about the guy in Georgia that has developed a way to produce oil by breaking down bio-waste with cow emzines. The story was released on the am Coast to Coast show with George Norey
August 19th, 2008 at 1:05 pm
Just curious, but is Peter Schiff related to Jacob Schiff of Kuhn, Loeb & Co., once a competitive rival of J.P. Morgan & Co.?
August 19th, 2008 at 1:11 pm
using aminal emzines to make fuel!! its cellulase, the enzyme that breaks down complex sugars like cellulose.
August 19th, 2008 at 1:14 pm
Russia has billions of US dollars if Bushie made them mad would they sell them and if so what would happen to the dollar then?
August 19th, 2008 at 2:31 pm
JAHJAH; local headlines where i lived stated us dollar is on the upswing. i noticed there were no comments in the comment section where as other comments about dems. repubs. conservatives, liberals the comments went on and on til i wanted to vomit. i gotta tell you people here in northern cal. are clueless and when you try to educate them on their indoctrination they resort to name calling religion etc… were communist or trying to bring down our country. they place blame on us when in actuality its the government leadership doing that. george carlin said our countries leaders sold us down the river 30 f…ing yrs ago. the education system sucks be happy with what get because it wont be getting any better. this guy was not only brilliant but hilarious. im sorry hes gone.
August 19th, 2008 at 2:59 pm
john: they won’t and neither will china. just as bill gates won’t dump off all of his msft stock because the direct value would drop accordingly. a slow, painful depletion is required to gain the most value. that is the biggest threat. anything else would be mutually assured destruction.
August 19th, 2008 at 6:20 pm
Yo number 10!! The Peter Schiff who is helping out Ron Paul?
August 19th, 2008 at 6:30 pm
This just keeps getting wierder. Check out who Dr. Andrew Schiff married. The daughter of Al Gore!! Keepin the blood lines in tact…they keeps it realz.
August 19th, 2008 at 6:32 pm
Number 10!!
Ok…they didn’t post my link the first time. But if you go to Wikipedia and search for Jacob Schiff, just scroll down to the bottom and check out the family lines. Peter is listed as a great grandson but they actually skipped a generation (you will see there is no son of Jacob, just straight to grandson). So it looks like he is the grandson of Jacob.
August 19th, 2008 at 11:07 pm
http://www.europac.net
August 20th, 2008 at 2:30 am
Calm down guys. This Schiff is not one of the money changers. Peter’s father is Irwin Schiff, a tax protester. http://en.wikipedia.org/wiki/Irwin_Schiff
Peter is a good guy, and a smart economist.
August 20th, 2008 at 3:39 am
Ron Paul for President/Peter Schiff for Secretery of the Treasury/Jesse Ventura for V.P./Alex Jones for a new cabinet level post…Secretery of the Truth. Then America will be on the road to recovery.
August 20th, 2008 at 5:56 am
http://www.worldreports.org/ne.....low_a_war_
see it people i’ts getting closer and closer to victory be happy:P
August 20th, 2008 at 7:34 pm
Oh my!! I saw our dollar bouying (sp) like the Titanic 2 weeks ago!! At a straight 180 degree angle!! As it was in an upside down state in a sea of screaming and very scared people!! Oh my!!
August 21st, 2008 at 4:34 am
we need to hunt the econimsits down put them on trial and then have a good excecution. I favour the electric chair just for its horror value. DOWN WITH THE NEW WORLD ORDER
August 21st, 2008 at 10:25 am
The dollar: Your reward for wasting your entire life on a hamster wheel in pursuit of the American Dream. Whatever the fuck that is.
August 21st, 2008 at 10:32 am
Now is the time to start using a new form of money to do transactions-the Liberty Dollar. It’s honest and inflation proof.
Intrinsic value = raw materials + labor to produce
Why would you trade your labor for something of less intrinsic value? That is why you are poor while the bankers are rich without having to work hard.
August 28th, 2008 at 8:49 pm
One of the great human collective illusions is finally about to die: money itself. Time to return to the natural economy: symbiosis.