US Insolvency

[fccool]

There are 10 elephants in the room, and hardly anyone is bringing this issue up. This is a real problem with pretty horrific consequences. I feel really bad for the elderly people who were suckered into this ponzi scheme and many of them will not get anything. I feel even worse for our generation who will have to slave away attempting to keep this ponzi scheme going.

I don't think that getting mad will solve anything. I think it's a mentality issue and it should be dealt with as such.

http://www.youtube.com/watch?v=QxoP_9W6FC8

[Dr. Shane]

I could only hear 7 seconds of the youtube video so I can't comment on it.

The weakening dollar is due to basically two things.

1) The Federal Reserve has lowered interest rates while other world banks have not. Interest is the cost of money. For example, if one borrows the money the cost they pay is the interest. Thus when the Federal Reserve lowers interest rates and other world banks do not, the cost or price of the US dollar becomes less and thus its value falls as measured against other currencies.

2) Many foreign investors are diversifying their currency investments. Some that had bought up US dollars are now buying euros and other currency which frees up more US dollars. With a larger supply of dollars on the market, the value of the US dollar falls.

All this is within control of the Federal Reserve. They can increase interest rates and cut back on the production of dollars. Either action would drive up the value of the dollar. However either action would also slow down the economy. So that needs to be done when the economy is booming as a means to put on the brakes.

One of the reasons the price of oil has gone up so high is because it is sold in US dollars and the value of the dollar is weak - thus they charge more for their oil. As long as Saudi Arabia and other American, oil-producing allies continue to sell their oil in US dollars, the US dollar will be a major world currency.

[fccool]

This video is not about any of the issues that you have touched on. Please give it a chance and watch it in its entirety and ignore the last two minutes. Let me know if you still can't hear it.

[Stan]

Here it is..

[fccool]

All this is within control of the Federal Reserve. They can increase interest rates and cut back on the production of dollars. Either action would drive up the value of the dollar. However either action would also slow down the economy. So that needs to be done when the economy is booming as a means to put on the brakes.

I don't think there's going to be economic "end of the world", but I think we do have some serious problem on hands. And that problem is dollar and who needs it. Currently, the countries that need the dollar to remain strong are China and USA itself. China holds a large portion of US debt so I don't think it would want to stir up any sudden changes. But US did back itself into a corner by excessive borrowing by means of overprinting of the dollar. I think that the problem would a lot less of a problem if US simply borrowed foreign currency.

As you have pointed out, the reason that that the dollar is dropping in price is divestment. So dollar is all shiny if people want to hold it, if they don't then they are willing to buy other things even at loss. If these dollars flow back into the economy... the overall value drops. So the real reason that we have not experienced any substantial inflation is because dollar was "solid" to invest in.

Iran is trying to start a chain of events that will create problems for US. It is dumping dollars and will except anything but dollars for oil. I don't think it will create a real big bust, but the psychological effect of this will create some waves as people will begin to loose confidence as they have already.

On top of it, US has a 13 trillion economy with 10 trillion of government debt, and over 40 trillion of unfulfilled future obligations. As people start to retire, either their governemnt checks will bounce, or the taxes will be raised.

Currently average American pays over 50% in taxes is you factor in cost of goods manufactured through which businesses pass on the cost of taxes to us. In order to resolve this issue, a couple of things will have to happen. The level of American life will have to be scaled down a lot. Which means no more buy it now pay it later things.

The Fed can not control the situation because they know what will happen if they hike the interest rates up. The people will suffer greatly as many rely on borrowing to keep their lifestyles comfortable. The American economy is driven by consumption and not production. If consumption stops, then there will not be any economy temporarily, and hiking rates will accomplish just that. People will start to save more. The businesses will start laying off people because mobody is buying products, and round and round it goes until there is some kind of sensible domestic manufacturing base.

So it is a problem, and no, Fed can't control it by manipulating interest rates. They are between the hammer and anvil right now.

Thank you, Stan.

[Dr. Shane]

I will have to watch the youtube clip when I get a break at work. I have dial-up at home and it isn't going to happen. Dollars have been produced in high quantities because there has been a high demand. As more of these dollars flow back into the market, the Federal Reserve can slow down the production of new dollars. However that does impact the economy by slowing it down. The time to have done this was over the past few years as the economy was on fire. Now that it is slowing down is not the time.

I would not underestimate how the Federal Reserve can control the value of the US dollar. The only thing that could be devastating and outside the control of the Federal Reserve is if some our the US oil-producing allies stopped selling oil in US dollars.

[fccool]

I'd like to wait and see if you will still hold to that view next year. Trying to manipulate interest rates with this immense unprecedented amounts of public, governmental, and business debts... is similar to rearranging deck chairs on the Titanic. You can't have system based on usury and debt and expect a blooming economy for everyone ... the interest will have to go up sooner or later. It's either creating more money and making problem worse, or raising the interest and face the consequences of recession... US right now is not in a very good position to handle this recession. We don't have any domestic manufacturing base and yet the economy revolves not around the production, but consumption of goods and services (with consumption being very disproportionate to production), with services being nearing the 75% of the GDP mark! We hardly produce anything of value outside of pharmaceuticals and entertainment, and we depend on cheap labor from abroad. The prices are being fixed to such degree that most farmers don't turn any profit because speculation determines the value and not the real worth of products. And there is no real reason that countries like Iran and Russia would want to support dollar hegemony with all of the blackballing they receive from US.

I would not underestimate panic of the people when they loose confidence in illusory reality of today's economic system with only 10% of real money in the banks and other 90 circulating as created debt. If people panic and make a run, you can never print enough money to solve the system. There are no such money. It's all digits in the bank and constantly circulating checks. If you begin to print money to cover banks, then the real value of money will be revealed as the real inflation hits. I pray that this will not happened, but it happed many times, so what would stop it from happening now? Let's call it what it is... a ponzi scheme...

[Dr. Shane]

OK, I have now watched the clip. I didn't see anything there that I haven't seen discussed before. It has more to do with federal spending than the value of the dollar. Federal spending needs to be capped undoubtedly. If that is a criteria for the nest President than McCain is the obvious best choice.

This cannot be done without pain. Newt Gingrich balanced the budget during the 1990s with everyone screaming that he was starving children. Bill Clinton shut down the government in a showdown with him. Newt's fiscal conservativism eventually cost him his job.

Like immigration, politicians are going to have to do what they know is right, even though it is unpopular.

[fccool]

Let's hope, because as of right now they are promising much, at the same time promising cut in taxation too. It's impossible. All of those issues could be easily fixed if the costs of military are cut, but I don't think that is an option that looked at seriously. US spends more on military than the rest of the world combined. But then again, how can we save the world without strong military .

[Dr. Shane]

Actually cutting spending for the military and intelligence played a significant role in balancing the budget in the 1990s. We simply have to reduce our military budget if we are going to decrease our national debt.

But notice something. When we had a surplus, all the politicians were arguing about how to spend it. Spend it? It was one year's surplus. Why not use it to pay off some of our accumulated debt? Now there is an idea. Pay down the debt.

[fccool]

Heheh. They don't think of it as debt, but as credit ... just like many of us with credit cards (I don't have one). It's not debt cards, it's credit cards... it sounds better that way.