U.S. Dollar Crisis Looms, Spike in Interest Rates Following End of QE2Currencies / US Dollar Apr 08, 2011 - 04:31 AM GMT
Chris Martenson writes: As a major currency crisis looms in the west, there are some things that we should all expect. Lifestyle changes that we don't have to imagine, but ones we can see happening right in front of us today. Now the catalyst for the beginning of a major currency crisis could be several things. To note just a few, QE2 ending would cause a spike in interest rates, banking crisis, and inevitably a debt crisis that would lead to a dollar crisis.
Unfortunately for those living in America, the extension of more QE, a QE3 will only delay the inevitable and actually make things much worse in the end. QE3 will signal to the world that there is no hope for the U.S. to ever manage its debt crisis, an admission that our economy is propped up by fiat magic money, and global price inflation will occur as a result of an increase in the global reserve currency.
Why a currency crisis is inevitable? When U.S. debt growth started to outpace our economic growth, that's when the problem crossed an invisible line into a coming crisis, however, when U.S. debt growth started to be funded by the Federal Reserve creating currency, that's when the problem crossed the point of no return. So, now the FED is in a situation where they are damned if they do and damned if they don't. You see private GDP hasn't risen in 14 years, GDP has been rising because of two factors, government spending and government manipulation. Obviously, everyone sees the problem with the government spending, especially when it comes from borrowed money. Remember, when the government borrows money, that money is not going into the private sector and when government spends money, it is creating unsustainable demand.
Now when it comes to the manipulation of the numbers, it's widespread. Hedonics, a low inflation application, and other government tricks have made our GDP number pretty much worthless. One of the big frauds was just discussed on 60 minutes last week, they discussed all of the money entering the economy from people not paying their mortgages. Billions and billions of dollars are entering the economy boosting GDP from people defaulting, yet it gets worse. The government in order to help GDP, creates a fake number to include into our GDP an application that includes imaginary income as if homeowners were paying themselves rent, so not only do these mystical rent payments enter our GDP number, but so does all this money from strategic defaults and honest defaults. So, when the government, especially the White House which is in re-election mode, comes out to celebrate a positive GDP, it's really a complete fraud, nothing more than window dressing. If you were to get rid of the window dressing, fraudclosures, hedonics, and an understated inflation application, you would see that our economy has been in a real downturn since the year 2000. Yes 2000, not 2007, and it continues because it never ended in 2009 as reported by the media.
You see by having artificially low interest rates and government backed mortgage lenders, the housing bubble made it look as if we actually had a growing economy when in reality almost all economic growth was credit driven. Especially towards the end of the housing bubble, we had waitresses making $1,200 a month buying houses in California. Now this keeps construction workers, realtors, loan officers, and all types of people working. The more money that was borrowed, the more money that entered the economy which spilled over into every industry. Remember, if a realtor is making more money, then they are spending and spreading that wealth all over the place, where they eat, shop, and when they make deposits at their local fractional reserve bank. To make matters worse, millions chose careers off of this fatality flawed economic boom in the first half of the last decade, just as many are choosing careers off of new economic imbalances today (courtesy of our government). So, not only do we now have record long term unemployment, we have jobs being created that are dependent on the government running trillion dollar deficits. As you can see, our economy is running full steam ahead into a brick wall.
Now, as far as our government cutting expenses, it is very unlikely. As of right now, a government shutdown could very well happen, of course in the U.S. that means we continue to spend, even a government shutdown isn't what it sounds like. The $40 billion draconian cuts that are being discussed is barely a drop in the bucket, $40 billion is 1.05% of the projected 2011 budget, it is 0.28% of the official national debt, and when looking at how much new debt we are going to add to our official national debt in 2011, $40 billion is only 3.3% of the 2011 projected annual deficit. In order to be taken seriously, we need a 1 trillion dollar cut in spending, instead $40 billion is being debated as if it will be the end of the world. Remember, it is THIS decade that our spending will accelerate as baby boomers enter the entitlement programs, THIS decade according to a leaked cable from the Saudi Embassy that Saudi Arabia will peak in oil production (2012), and it is THIS decade that China will fully and completely internationalize the Yuan. This decade we will see tectonic shifts and systemic changes in our global economy. Now the old saying is that the rich get richer and the poor get poorer, in our opinion this is true. So with this knowledge, we would say it is pretty important to make sure your not poor going into these massive changes this decade.
What you could see in the United States of America this Decade
If you have time, we suggest you watch a recent Chris Martenson interview. Chris Martenson is the author of The Crash Course. During the 6 minute interview of Martenson, he says we could see a global liquidity crisis very soon because of the Japanese disaster. We mentioned within hours of the crisis that there is the possibility of Japan being unable to continue its purchases of U.S. Treasuries, the worst case scenario being they actually have to start selling them. Chris Martenson's analysis is a must watch for all FutureMoneyTrends.com members. Please click here to view the video.
By Chris Kitze
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© 2011 Copyright Chris Kitze - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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19 Apr 11, 04:48
So what currency will be the main currency then if the US Dollar fails to attract countries? I am guessing the Euro? But I need to hear from some more experienced people here.