[seahorse2]

There used to be some long debates about how long the dollar could remain the world's reserve currency. They were interesting, often heated debates, but informative nonetheless.

I believe I speak for most people to say that after years of debating PO and a whole host of other issues, that the events of the last 7 days have done more to damage the world's belief in the "full faith and credit" of the United States than all the other issues we ever debated that could lead to a devaluation of the dollar.

As one US trader said on t.v. last night, he was not investing at all anymore. When there are no rules, when new rules are promulgated in the dark of the night without any notice or comment, only to be announced the next morning, its a fools game. If this trader who is a regular on prime time US MSNBC has lost all faith, I can only imagine every trader in the world feels the same.

Ultimately, people have invested in the US because they believed in the stability of its economy and the stability of the rules of the game, capitalism, with due process. If anything leads to a death spiral of the dollar, it will be more like this week which rock the very foundations of why people have believed in the US is a safe place to take risks.

[smallpoxgirl]

+1

It's not a market anymore. It's a circus.

[Cashmere]

+2

[For the record, I pulled all of my long term investments today. What's the point of having long term investments if the U.S.S.A government makes clear that the investments are subject to nationalization at a moment's notice?]

[Cid_Yama]

<b>Asia Rethinks American Investments Amid Market Upheaval</b>

Tremors from Wall Street are rattling Asian confidence, leading many investors to question the wisdom of being invested in the United States to the tune of trillions of dollars.

Asian investors were starting to show hesitation even before the financial earthquake of the last week. Now, a wariness toward the United States is setting in that is unprecedented in recent memory, reaching from central banks to industrial corporations, from hedge funds to the individuals who lined up here to withdraw money from the American International Group on Wednesday.

Asia’s savings have, in essence, bankrolled American spending for decades, and an Asian loss of confidence in American financial institutions and assets would have dire consequences for both the United States government and American taxpayers.

Little-noticed data released by the Treasury Department on Tuesday showed that a sharp shift in international capital movements began in July. Private investors pulled a net $92.9 billion out of the United States, after putting $46.8 billion into American securities in June.

Central banks, mainly Asian, did continue buying American securities in July. But they did so at a slower pace than usual. They made net purchases of $18.2 billion, compared with an average monthly purchase of $22.3 billion in the first half of this year, according to the latest Treasury data.

The central banks also changed the allocation of their purchases. They bought short-term Treasury bills while slowing their purchases of longer term Treasury bonds and American corporate bonds. And they abruptly switched from being large buyers of bonds from government-sponsored enterprises, like Fannie Mae and Freddie Mac, to becoming net sellers — one of many factors that contributed to the Bush administration’s decision to put Fannie Mae and Freddie Mac into conservatorship.
link

[Cashmere]

$this->bbcode_second_pass_quote('Cid_Yama', '&')lt;b>Asia Rethinks American Investments Amid Market Upheaval</b>

Tremors from Wall Street are rattling Asian confidence, leading many investors to question the wisdom of being invested in the United States to the tune of trillions of dollars.

Asian investors were starting to show hesitation even before the financial earthquake of the last week. Now, a wariness toward the United States is setting in that is unprecedented in recent memory, reaching from central banks to industrial corporations, from hedge funds to the individuals who lined up here to withdraw money from the American International Group on Wednesday.

Asia’s savings have, in essence, bankrolled American spending for decades, and an Asian loss of confidence in American financial institutions and assets would have dire consequences for both the United States government and American taxpayers.

Little-noticed data released by the Treasury Department on Tuesday showed that a sharp shift in international capital movements began in July. Private investors pulled a net $92.9 billion out of the United States, after putting $46.8 billion into American securities in June.

Central banks, mainly Asian, did continue buying American securities in July. But they did so at a slower pace than usual.

[charliebrownout]

$this->bbcode_second_pass_quote('seahorse2', 'T')here used to be some long debates about how long the dollar could remain the world's reserve currency. They were interesting, often heated debates, but informative nonetheless.

I believe I speak for most people to say that after years of debating PO and a whole host of other issues, that the events of the last 7 days have done more to damage the world's belief in the "full faith and credit" of the United States than all the other issues we ever debated that could lead to a devaluation of the dollar.

As one US trader said on t.v. last night, he was not investing at all anymore. When there are no rules, when new rules are promulgated in the dark of the night without any notice or comment, only to be announced the next morning, its a fools game. If this trader who is a regular on prime time US MSNBC has lost all faith, I can only imagine every trader in the world feels the same.

Ultimately, people have invested in the US because they believed in the stability of its economy and the stability of the rules of the game, capitalism, with due process. If anything leads to a death spiral of the dollar, it will be more like this week which rock the very foundations of why people have believed in the US is a safe place to take risks.

[seahorse]

Anyone who keeps investing in any kind of retirement account thinking the US gov't won't change the rules of the game by the time you want to retire is making a foolish bet. Our grandparents lots a lot of money and faith during the great depression. I suspect we are getting ready to relearn the same lessons.

[heroineworshipper]

The news is a lot like Lehman announcing a reorganization or AIG borrowing money from itself minutes before the implosion. The feds R pressing their suits, polishing their sunglasses, & recharging their earplugs outside....pennsylvania Ave.

[messageinabottle]

$this->bbcode_second_pass_quote('seahorse2', 'T')here used to be some long debates about how long the dollar could remain the world's reserve currency. They were interesting, often heated debates, but informative nonetheless.

I believe I speak for most people to say that after years of debating PO and a whole host of other issues, that the events of the last 7 days have done more to damage the world's belief in the "full faith and credit" of the United States than all the other issues we ever debated that could lead to a devaluation of the dollar.

As one US trader said on t.v. last night, he was not investing at all anymore. When there are no rules, when new rules are promulgated in the dark of the night without any notice or comment, only to be announced the next morning, its a fools game. If this trader who is a regular on prime time US MSNBC has lost all faith, I can only imagine every trader in the world feels the same.

Ultimately, people have invested in the US because they believed in the stability of its economy and the stability of the rules of the game, capitalism, with due process. If anything leads to a death spiral of the dollar, it will be more like this week which rock the very foundations of why people have believed in the US is a safe place to take risks.

[Iaato]

Schiff says don't get caught in the stampede. It will be a sight to behold as quite a few people try to squeeze through a narrow doorway getting out of the dollar, and into physical assets.

$this->bbcode_second_pass_quote('', '"')While it is dizzying to predict how this plan will be implemented, it is fairly simple to foresee the macroeconomic consequences. The U.S. dollar will be shattered beyond repair. The government simply has no means to make good on the trillions of new liabilities. Interestingly, while both Paulson and President Bush acknowledge that the plan will put "significant amounts of taxpayer dollars on the line," they did not mention any tax increases. Given the politics, no such move is forthcoming. The printing press is their only solution.

The government has also decided to insure all money market funds, adding trillions more in unfunded liabilities to the Federal balance sheet in the blink of an eye. Of course, since bad real estate loans are not the only toxic assets on the balance sheets of financial institution, we will also need to absorb other classes of asset-backed securities, such as those backed by credit card debt and auto loans. So while the move ensures that depositors will not lose money, is does insure that the money itself will lose value. Is the trade-off really worth it? Washington thinks so.

Further, since I assume the plan will apply to all mortgage debt, U.S. taxpayers will also be on the hook to bail out foreign institutions that loaded up on the financial sludge. However, once the government takes them off the hook, do not expect them to re-invest the windfall back into other U.S. dollar denominated assets. This get-out-of-jail free card will likely scare them straight. The global mass exodus from the U.S. dollar and Treasury debt is about to begin: do not get caught in the stampede."

[frankthetank]

Its like me going to one of the local Indian casinos. The odds are against me no matter what game i play... I'm not touching a stock with a 10 foot pole. I'll just keep buying "stuff" and keep a modest amount of cash and that is it. The rich can have it...and herpes.

[Delphis]

$this->bbcode_second_pass_quote('messageinabottle', '
')
I agree but why did da market go up today? So people DID fall for it, and isn't PERSPECTION everything???

[DantesPeak]

The value of the dollar, more specifically the value of the dollar as a reserve currency, is the weak link in the exponential expansion of the world money base this week.

All actions this week by the PTB were taken to avoid a systemic US financial crash. However there is one thing they won't be able to prevent - a crash in the US dollar. Therefore the PTB may have differed a financial crash but brought forward a dollar crash.

Keep in mind that even foreign central banks this week mostly increased the supply of dollars (through swap agreements), and not their own currencies. With so many extra dollars suddenly floating around the world, and maybe not wanting to stay in the US - especially after a contrived stock market rally - the dollar could suddenly come under intense selling pressure by money looking to be invested elsewhere.

The main defense against a currency crash is sharply raising interest rates. Will the US eventually choose to raise interest rates while liquidating trillions $ in assets from F & F - and the new RTC like federal entity - or just let the dollar fall in value?

All of our financial system rescues have been used up; they won't be able to stop the coming dollar meltdown once it starts.

[bkwillia]

Nothing has changed. The feds just bought some more time. There is money to be made from a falling dollar, if you like making money...

[smallpoxgirl]

$this->bbcode_second_pass_quote('bkwillia', 'N')othing has changed. The feds just bought some more time. There is money to be made from a falling dollar, if you like making money...

[mmasters]

$this->bbcode_second_pass_quote('DantesPeak', 'W')ill the US eventually choose to raise interest rates while liquidating trillions $ in assets from F & F - and the new RTC like federal entity - or just let the dollar fall in value?

[Koyaanisqatsi]

When does the dam break? Which country will be the first to dump the dollar?

Central banks are afraid to sell because they know that if the dollar is trashed then the global economy will crash. But as the value of the dollar slowly haemorrhages, someone is going to try to be the first out of the exit. When that bank dumps its dollars, then the other banks will follow and the world economy tanks - correct?

Who is it going to be, and when?

[Koyaanisqatsi]

This video has been linked here before but is worth reposting.

The Day of the Dollar

Edit to add caption:

$this->bbcode_second_pass_quote('', 'D')o we live on a bubble? Is it possible for the heavily indebted American economy to collapse and take all of us down in a free fall with it? Have the days of the dollar been counted? Is it really unimaginable that we will see the time of the Great Depression repeating itself?
VPRO Backlight and Dutch national newspaper NRC Handelsblad present this 'what if' scenario. What if the dollar collapses? Fiction meets facts in this 24 hour scenario. At 9AM a Singapore trader is ordered to sell a large amount of dollars, which sends off the enormous downfall of the dollar. This film shows the results for the world economy every following hour. It ends in Amsterdam, where the only currency accepted by a taxi driver is sigarettes...
History seems to have caught up with this 2005 film, though in slow-motion...
Includes interview with analist Stephen Roach, Andy Xie, Maarten Schinkel, Cees Maas, Rob de Wijk and Kees Vendrik.

[Snowrunner]

$this->bbcode_second_pass_quote('Koyaanisqatsi', 'W')ho is it going to be, and when?

[Koyaanisqatsi]

To develop the above issue a bit more....

I have been hoping for a slow crash, but I submit for your consideration the following scenario.

1) The U.S government, as we have seen, is more than happy to run up the debt ad infinitum.

2) The U.S. taxpayer is happy to let it, so long as taxes are not increased.

Therefore, the U.S. debt will continue to increase, and the dollar will continue to slide.

Foreign creditors know this and want to dump their dollars, but do not because they understand that doing so would cause a run on the dollar. At the same time, they know that this cannot last forever. At some point, the U.S. will not be even able to service the interest on the debt. Further, they know that all the other creditors know this as well. Central banks are all looking at each other, waiting to see who is going to try to draw their gun first, and hoping that they themselves will be the quickest to draw and shoot. At that moment, the guns at the OK coral will be blazing.

Essentially, all the parties involved–US taxpayer, US govt., foreign creditors–do not want this Ponzi scheme to end. So they will wait until the absolutely last moment and then the fall will be precipitous.

So, a fast crash is on the books for us - within one day, as imagined in the above video. As of yet I can’t see any faults in this logic. Can you?