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U.S. Dollar Crisis Looms, Spike in Interest Rates Following End of QE2

Currencies / US Dollar Apr 08, 2011 - 04:31 AM GMT

By: Chris_Kitze

Currencies Best Financial Markets Analysis Article

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.

An oil spike, which could be the most likely as we write this today, could literally be the final nail in the coffin sparking massive price inflation, shortages, and a renewed debt crisis as consumers default on credit cards and mortgages in order to buy fuel and other household needs.


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  

What you could see in the U.S. this decade is what you have seen in Japan over the last month. No nation on earth will feel such a dramatic change in lifestyle during a currency crisis than the one that currently has the world reserve currency. As global economic imbalances begin to shift in order to find a market driven equilibrium, the 4.5% population in the U.S. that is currently consuming 50% of the world's resources is going to learn what scarcity is nationwide.
When the world doesn't need dollars, when the world demands higher interest rates for our debt, Americans will see a combination of radical price increases, shortages, and government product limits. Even products that say 'Made in the USA' are often times dependent on international parts and pieces. For example, we have often heard that many of our Toyotas are now manufactured in the U.S., yet with the recent Japanese disaster, many American plants are being completely shut down because of part shortages from Japan.  This is going to affect about 25,000 workers here in the U.S. The scenario of American plants unable to trade their dollars for parts or parts costing too much is something that we believe could definitely be in our future, not only parts, but commodities as well. We are already seeing commodities LEAPING in prices, not creeping up as the FED has referred to price inflation, commodities are soaring and there is no other way to explain it. When looking at commodity stocks, like precious metal mining companies, it amazes us that these companies are not seeing double digit moves on a sometimes weekly basis. Remember every time silver, for example, goes up a buck, that's a buck in profit added to these mining companies. Price inflation is typically the result of an expansion of the money supply, however, in rare instances you can also have price inflation from a lack of faith in a currency causing it to be less valued. In the U.S., we could see both factors come into play in regards to the dollar.
So, what would life look like if we saw a significant devaluing of the U.S. dollar? In Japan right now, first world citizens are being limited to how much bottled water they can buy, how much fuel, and in some instances food. Shortages of fuel, food, instant meals, batteries, flashlights, and portable radios have been reported throughout the country. In short, everyone who wasn't prepared for a crisis is trying to prepare while already in a crisis. The government has limited consumers only being able to purchase a 2 liter bottle of water per person. Throughout Japan petrol rationing was introduced almost immediately with a maximum of 20 liters per car (some instances 5 liters). The only thing Japan hasn't seen that believes America will not be able to avoid, is wide spread civil unrest and looting for a short period of time during a currency crisis.
Western Europe protests and Katrina has shown us just how ugly things can get during a crisis. With the vast majority of American citizens, businesses, and grocery stores on an 'order on demand inventory model,' we could see things get ugly within 48 hours of a bond crisis, currency, or spike in oil. Most Americans have about 3 days of food supply in their households, of course some have a lot less. Grocery stores typically order supplies every day and could be wiped out within hours. Businesses who rely heavily on international parts could also be shut down within days, just like the Toyota plants who rely on parts. Nothing could be worse then millions of people sitting around with nothing to do but panic, out work, out of food, and out of their normal routine.
Now, will this last forever? No, of course not, but could this potentially happen? In our opinion, it's only a matter of time. Those who prepare can not only survive, but thrive during and after a currency crisis. Many people like to take a worst case scenario and turn it into an end game scenario, that is NOT what we are trying to portray. Throughout history these events take place and humanity continues, empires rise and fall. Japan, 66 years ago, survived two massive bombs and Germany has survived two world wars that decimated their nation. What we are trying to say by pointing out these economic realities is that a coming crisis and major shifts in the economy doesn't have to be your crisis, it all comes down to what you are doing right now with the information you have.
Leading Economist Getting Very Concerned

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 members. Please click here to view the video.


By Chris Kitze

A long career in digital media led to Before It's News, the People Powered News site that is quickly becoming a leading source for alternative news. We've got a great team of very bright and hardworking people with an incredible market opportunity that's been handed to us by a corrupt media and government. We're here to help you get your news out, that's why this site exists.

© 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.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


19 Apr 11, 04:48
Just Wondering

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.

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