[MonteQuest]

Since we have many new members since I first posted this thread, I thought it apropos to revive it.

[Permanently_Baffled]

$this->bbcode_second_pass_quote('', '
')The dollar is continuing it's decline

[MonteQuest]

$this->bbcode_second_pass_quote('Permanently_Baffled', ' ')
The dollar is having a bit of a resurgance at the moment (1.19 euros , low was 1.36 Euros , and 1.77 Pounds, low was 1.92)

[MonteQuest]

$this->bbcode_second_pass_quote('MonteQuest', ' ')The trade deficit assures this will correct. We don't know when.

[Permanently_Baffled]

Thanks Monte , I appreciate your time in answering the questions.

The UK is currently using the interest rate weapon (4.25% currently from a low of 3.25% i think).

The result has been a "housing slow down" and drop in consumer spending.

The latter has spooked the Bank of England , since it maybe an indication of recession.

Therefore , the Bank of England is talking of dropping rates. Now this is despite the same inflationary worries and trade deficit issues as the US.

How on earth can the UK drop rates, when we are running a massive trade deficit? (in relation to population it isnt far off the US figure), and we are absorbing the same energy price increases (which are impacting inflation).

Of course this tactic (if valid) seems very short sighted since , once we decrease the interest rate then consumers are just going to borrow more and more until we reach another limit, consumer spending drops and so the interest rate has to come down again to free up more spending power.

Now this seems crazy because once rate do have to rise again becuase of the weaker pound and inevtiable inflation , more people are going to be in deep shit.

I just don't understand it...

PB

[Macsporan]

$this->bbcode_second_pass_quote('RdSnt', 'T')he stated US foreign policy is to maintain their military and economic dominance. Strategically, the United States needs to turn India and China into glass, that is their only option. There isn't enough military, cooperation, money or time to do anything else, if they wish to fulfill their foreign policy objectives.

[DoctorDoom]

Well, I wonder if buying overpriced houses with lots of borrowed money might actually make sense if we are about to enter a stagflationary or even hyperinflationary period. Having money would be bad, having tangible assets and lots of low-interest debt would be good. Anyway it seems that a real-estate crash and high inflation are incompatible with each other. You could have the crash followed by high inflation, but probably not both at the same time.

I have wondered though if we might see some big swings in the relative values of real estate. In an oil-poor world, energy-efficient housing closer to the workplace should have greater relative value, inefficient mansions an hour's drive from work should have lesser relative value.

Of course if we enter a doomsday scenario the money flow could be to inflate the value of rural land and deflate urban/suburban land. That could happen to a point, but if it really starts looking that bad, who would trade their valuable rural land for worthless government paper anyway?

[BabyPeanut]

$this->bbcode_second_pass_quote('Petro', 'D')uring the '50 did the Japanese say: "Americans are pigs...they don't deserve our advanced mico-minature technology...let's not sell them (or the rest of the wold transistor radios)?

[MonteQuest]

Well, let's see how things are panning out.

On December 13, 2004, I posted this thread and made this prediction;

$this->bbcode_second_pass_quote('', 'S')ince virtually all commodities use petroleum fuel to move from production to consumption, as fuel prices rise whether by market forces or by currency decisions by OPEC to offset the loss in revenue as the dollar declines due to our trade imbalance, all commodity prices must also rise. Whew! What a mouthful! This will create inflation. To curb the inflation, the Fed will raise interest rates.

[MonteQuest]

The Federal Reserve has outsourced another American job. China will now dictate the value of the U.S. dollar. The raising of long-term interest rates is now the providence of China. In the short-term especially, the U.S. trade deficit will rise. Why you ask? As the dollar drops our exports become cheaper. Won’t that narrow the deficit?

No, this small devaluation will not move the factories that make the products American’s consume back here; we will just pay more for them. The U.S. trade deficit exists because the factories that produce the real production are increasingly in other countries. We cannot compete with third-world wages making first world products.

Americans cannot go on borrowing from foreign central banks to buy Chinese goods forever. To fix this imbalance, we must do one of three things:

1. Export more and import less.
2. Increase the US savings rate. Borrow at home.
3. Increase interest rates.

The FED tried raising short-term rates as I predicted. It didn’t work; created Greenspan's "conundrum." So now they pulled off a new tact; get the Chinese to raise them for us. Now this has some far-reaching consequences.

When the Chinese revalued the yuan, more than US$200 billion of purchasing power was lost. That $200 billion is the decline in value of U.S. dollar M-3 alone; a broad measure of money supply. If you had your money in dollar denominated assets on the morning of July 20, 2005, you were 2% poorer by the time you left for work.

Here’s what I predicted on Dec 13, 2004:

$this->bbcode_second_pass_quote('MonteQuest', 'A')nd as the price of food and other essential commodities rise--along with house payments tied to variable rate mortgages--luxuries and dispensable goods and services will drop out of the family budgets and the standard of living will decline and unemployment will rise.

[Dezakin]

$this->bbcode_second_pass_quote('', 'N')o, this small devaluation will not move the factories that make the products American’s consume back here; we will just pay more for them. The U.S. trade deficit exists because the factories that produce the real production are increasingly in other countries. We cannot compete with third-world wages making first world products.

[MonteQuest]

$this->bbcode_second_pass_quote('Dezakin', '')$this->bbcode_second_pass_quote('', 'N')o, this small devaluation will not move the factories that make the products American’s consume back here; we will just pay more for them. The U.S. trade deficit exists because the factories that produce the real production are increasingly in other countries. We cannot compete with third-world wages making first world products.

[MonteQuest]

Here’s what I predicted on Dec 13, 2004:

$this->bbcode_second_pass_quote('', 'A')nd as the price of food and other essential commodities rise--along with house payments tied to variable rate mortgages--luxuries and dispensable goods and services will drop out of the family budgets and the standard of living will decline and unemployment will rise.

[Snowrunner]

$this->bbcode_second_pass_quote('savethehumans', 'W')ish I could believe in a slow descent, too....

Unfortunately, the US economic system, followed by the world economic system, is about to collapse. Social/political upheavals will follow. And producing even sustainable amounts of fossil fuels will become more and more problematic (as problematic as the regions where most of them are found!).

This isn't going to be slow.

Next decade officially begins January 1, 2011. Wonder what the world will be like by then....

[Snowrunner]

$this->bbcode_second_pass_quote('Dezakin', '
')We've seen the threat of the rise of China in the rise of Japan in the 80's and the rise of the post-war european economies in the 60's, and still US manufacturing capacity has actually grown year on year for the past century, and even the last decade. The only thing that is being lost is manufacturing jobs.

[kevincarter]

I’m trying to draw a picture of the cycle that we’ll see soon; can anyone help me to draw it better? Thanks!

{I merged your thread with mine. See my initial post. MQ}

Prices of gas will keep increasing and people will just keep paying more. Over here people do not commute so many hours a day and they have some money left once their basic expenses are covered. So people will keep paying more to get to their offices, they just don’t know how much are they willing to pay for gas. 2 euros per liter, 4, 8, 16 euros per liter? They will pay, no matter how angry and frustrated they get, they will pay. But there is someone who won’t pay, and that someone is the truck driver, because once the amount that he has to spend exceeds the amount he gets he will stop working. So prices on everything will rise and distribution will start again. Then people will not only have to spend crazy money in gas but crazy money in food too, so they will keep life simple, not spending on anything else than fixed expenses (food, gas, mortgage etc…) many shops will have to close leaving many unemployed. By that time there will be a good amount of people bankrupt, those who can will move with relatives, those who can not will become beggars or criminals. Gas will keep increasing, everyone who can get rid or reduce his fuel expense to go to work will do it, except the rich or the dumb. By that time everyone will be extra angry and irritated, anxiety, depression, stress rates will grow exponentially. I guess by coincidence or economic law (I’m no expert) the interest rate will increase, many won’t be able to pay for their overpriced homes. Gas prices up again, truck drivers have to stop again, farmers have to stop this time too, prices increase again. Now there is a lot of people who just can’t make it till the end of the month. More go bankrupt, those who can move with their relatives, those who can not become beggars or criminals.

The cycle always leaves with more beggars and criminals, how long does it take you to fall into those categories is a matter of time, savings, kind of job that you have and how PO ready you are. To my eyes is all about being able to get your own food, cutting the crap and keeping things simple. I also find wise to stay away from large amounts of population.

Critics, amendments, and extra info are welcomed.

[gordito]

Well, you are already seeing the signs with Walmart's lower profit statements, the increase in filing for bankruptcies, drive-offs and theft of gas and even rolling blackouts in California. My best guess is that we will see a terrible Holiday season for all the retailers, including the big-box stores. I work at the Customer Service department of a large bank handling credit cards for all the major oil companies and many calls are to cancel cards in order for them to organize finances or credit increases because of gas prices. So people will keep spending on essentials like food, gas, mortgage and cut out things like vacations and nifty tech toys. Also, I expect that the banks and credit card companies will take a hit as people simply stop paying for their credit bills and just chop up the cards.

[MonteQuest]

$this->bbcode_second_pass_quote('Montequest', 'A')nd as the price of food and other essential commodities rise--along with house payments tied to variable rate mortgages--luxuries and dispensable goods and services will drop out of the family budgets and the standard of living will decline and unemployment will rise.

[elizabethlea]

MonteQuest - we live in Australia and are being hurt by higher and higher grocery bills - every month we have to make our money go farther. But no one's talking about inflation that I am aware of....

Anyway just wanted to let you know we feel the pain over here too.

[marko]

Good thread, Monte. My feeling is that the decline will be gradual over the long run, but that in the short run we will experience it at least partly as a series of economic collapses, probably accompanied by political instability. As I will argue, these economic collapse and political instability (or warfare) will tend to prevent us from investing in conservation or more sustainable energy technologies.

I am thinking specifically of the financial disaster that awaits us when interest rates rise or the US economy deteriorates to the point where large numbers of people are no longer able to make their monthly debt (mortgage/credit card) payments. When this happens, you will see real estate prices and consumer spending collapse, and many banks will be in serious trouble. The stock market will crash, the federal budget deficit will go through the roof. Because the drop in demand will cut the current account deficit, our foreign creditors will have insufficient dollars to fund the federal budget deficit. At that point, either interest rates go through the ceiling to attract buyers (at which point the government might no longer be able to service its debt) or the Fed prints money to buy the federal debt and the dollar collapses, very likely with a rush for the exits by the East Asian central banks. Either outcome steepens the economic decline.

When (not if) we have this economic depression, energy consumption and energy prices will drop without much new effort to conserve or develop renewable (or any non-fossil fuel energy). So that if the global economy begins to creep back upward, it will be on the basis of the same old petroleum-centered and energy-efficient technologies that drove up prices the last time around. And then prices will rise to the point where they bring another economic collapse. Energy prices will fall again, and profits will be too low for the private sector to invest in energy technologies that might allow a more sustainable economic recovery.

However, the severe economic stress that will result from these economic collapses will create public unrest not only in the US but in China and elsewhere. The rich and powerful in many countries will be looking for scapegoats and a way to get the angry young men off the streets. In the past, these circumstances have often given rise to wars. Either political unrest or warfare would tend to further limit investment in a new energy regime.

This cycle may repeat itself multiple times and limit investment in a sounder energy regime. As a result, our civilization is likely to unravel in potentially very dangerous ways.