Economic Collapse

As I posted a two days ago, Peter Schiff does not agree with Nobel Prize winner Paul Krugman about China and what would happen if the chinese stopped buying US debt. As he said in the video he would write an in-debth article on the same subject. That article is now available, entitled “Paul Krugman Versus Reality“. Here are a few quotes:

In his latest weekly New York Times column, Nobel Prize-winning economist Paul Krugman put forward arguments that were so nonsensical that the award committee should ask for its medal back…

According to Krugman, our secret weapon of economic invincibility is the Fed’s ability to print dollars endlessly. If China were to foolishly decide to attack us by selling our debt, the Fed could simply step in and buy the excess with newly printed greenbacks. (In other words, Krugman sees no difference between funding the debt and monetizing it. See my latest video blog on the subject.). For Krugman, China would gain little from such an attack, but would lose the ability to export to its best customer and suffer severe losses in the value of its dollar holdings. Krugman’s worldview is reassuring - but it has absolutely nothing to do with reality…

There is a huge difference between selling your debt to another and “selling” it to yourself. When China buys our debt, it uses its own savings. In order to purchase a trillion dollars of U.S. Treasuries, the Fed would have to expand our money supply by a corresponding amount. Even Krugman acknowledges that this would cause the dollar to lose value; however, he feels that a weaker dollar is good for America and bad for China…

Krugman does not believe that a tanking dollar will translate into higher interest rates or higher consumer prices at home. No matter how many dollars the Fed creates, or how much value those dollars lose relative to other currencies, he is confident that as long as unemployment remains high, rates will stay low and inflation will remain under control. This is absurd…

To construct a policy around Krugman’s ridiculous assumption that we benefit China more than they benefit us is to invite catastrophe on an unimaginable scale.

Peter Schiff takes on Nobel Prize winner Paul Krugman’s column in the New York Times in this little clip explaining why Krugman is wrong on China and the impact of a Chinese massive sell-off of US debt on the Dollar. This is a good example on the difference between a Keynesian view (Krugman) and the view held by the Austrian School of Economics (Schiff). For some fun on the difference between these schools of though, watch this rap video.

I’d love to see a debate between these two guys.

The Chinese continue to move out of the US fiat paper currency and into real money, gold. India purchased 200 tones last year. As the saying goes “he who owns the gold makes the rules” this furthers the process already in the making for decades - the financial center of the world will move from the US to China and Asia.
http://english.pravda.ru/business/finance/25-02-2010/112369-china_gold-0

India buys 200 tonnes of Gold from the IMF for 6.7 billion US Dollars. Thats more than 7 million ounces and half of the announced IMF gold sale of 400 tonnes. Who will buy the other 200 tonnes? My bet is China. Why are they doing this? They want to get rid of their US Dollars and into hard assets. Gold is the money of kings. Debt is the money of slaves. Just look at the rate of decline in foreign purchases of US debt: Read the rest of this entry »

On the 14:th I wrote in response to a BBC report on Putins visit to Beijing, China:

“Yes, Medvedev and Jintao is moving away from the US dollar and will settle this 20-year-deal in their own currencies. You should also move away from fiat paper of the west and move into your own currency: gold. Be your own banker, as a friend of mine says.”

On the same day the Russian news outlet “RIA Novosti” quoted Putin on the topic:

“Yesterday, energy companies, in particular Gazprom, raised the question of using the national currency. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans,” Putin said.

Now that the Fed is buying almost all the Treasury bills since the demand from foreign buyers is almost gone, the only thing that keeps the US dollar from going down the tube is the petrodollar: Currently buyers of oil, natural gas and other commodities have to first buy US dollars to make their purchases. When these commodities are available in other currencies, the End of the Dollar is here.

I’ve been more busy than usual with projects and clients for a few days, so here’s a recap of what has been going on in the last few days:

A lot of things are happening on world currency markets right now. What we are seeing now is a move away from the US dollar, a diversifying by Central Banks as well a move into the only currency with no counter-party risk: gold. The Metal of Kings rose to a new high at 1.060 USD/Oz during the last trading days and today almost 1.070 for a few minutes. Here is a Gold chart from today (14 October 2009):
Read the rest of this entry »

Dear readers, interesting times to say the least. As stated in one of the most important articles in decades (discussed here on Mellgren.com), the denials from US media and officials are in, like clock-work:
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Dear readers. This might be the biggest financial news to hit the Internet since Bear Stearns and Lehman Brothers. I, and many other experts with far better understanding than I have, such as Catherine Austin Fitts and Krassimir Petrov, have been saying this for years: Oil will not be priced in US dollars for long. When the move away from the Petrodollar happens, the US Empire will fall. From The Independent:
Read the rest of this entry »