If the dollar takes a dive

[Pharaoh]

because of the iranian oil bourse, the bombing of Iran, the massive US deficit and all the other stupid antics of shrub $ company, what would be a good investment? I was thinking of putting some of my savings in euros..........any advice out there?

:party: :party: :party:

[BlueEyedSon]

1. Gold

Oil, commodities in general, a basket of foreign currencies, defense contractors......

[ProfessorGAC]

2. Could You Provide Some Causation?

What in the history of economics would cause that dollar to drop precipitously? I know you mentioned three things, but you don't provide causative context as to how those things would cause the event with which you're concerned.
The Professor

[Pharaoh]

4. Our whole economic system is a house of cards right now

I don't have time to spell it out for you right now as I need to go to work.
lots of info out there if you want to dig a bit......

[ProfessorGAC]

8. You Want Me To Dig In A Bit

I've been doing econometric studes for 25 years, several being published in academic journals. My research has been ongoing since the early 80's!!

How convenient that you don't have time when challenged to explain just how this event would happen?

BTW: You do know that EVERYBODY'S economy is a house of cards, right? So, explaining your concern with a tautology is hardly convincing.
The Professor

[BlueEyedSon]

14. I have been doing technical analysis (badly) for 5 years. My 2 cents:

The USD just had a head & shoulders bottom and should be rising for a while.

:)

[publius_jr]

5. The assumption was tacit, I think

Each of the scenarios would lessen demand for the dollar (Iranian non-dollar oil market) or increase its supply (war costs money). Other currencies may be inflating (gov'ts like to do that), but these scenarios would render our inflation an order of magnitude greater than theirs.

[ProfessorGAC]

7. That Doesn't Answer The Question

I admit that i've been trying to put this concern to rest here at DU for some time. In my studies i see absolutely nothing in the data, the theory, or the historical record that indicates any such concern is warranted. The overall interrealational global economy would appear to reject any such monetary collapse of any major macroeconomy, not merely ours.

Given that no such event has ever precipitated a monetary collapse, or even a confluence of several economically negative events, i believe this concern wholly unwarranted.

It's based upon years of study and education. Those who wish to accept my conclusions are free to do so. Those who do not are equally free.
The Professor

[publius_jr]

35. You want history? You can't handle history.

The idea that no event has ever triggered a monetary collapse is nonsense.

World Wars I & II precipitated such a collapse, not in the dollar but in the British pound, the German mark, and other Eurasian curencies. The reason for the relative decline of their currencies was because they were spending more heavily on the wars than we, inflating their currencies to buy armaments from us.

Now the situation is reversed, with us financing a war on terror, a war in Iraq, and the profuse pork subsequent to a single party dominating both the legislative and executive powers, with us borrowing to buy goods from abroad. The exchange rate of the dollar has already significantly declined. Sure, other factors contribute to the exchange rate. But I am convinced, by that same history in which you see the reverse, that further profligacy will lead to further decline, sooner or later.

[ProfessorGAC]

37. Wrong

There's is nothing i can say other than you're wrong, and you still have established nothing but your own opinion. That is the exact opposite of why i entered this thread in the first place.

And, the point of my contention is that the currency of choice for a commodity is a non-factor. I never stated that debt, deficits, and attempts at hegemony by idiots that can't even spell it was not cause for concern. So, if you can't read what i said any better than that, don't bother replying to me.

The Professor

[no_hypocrisy]

6. Classic Essay: The Economic Tsunami by Mike Whitney

http://www.counterpunch.org/whitney04082005.html

[ProfessorGAC]

9. I've Met Mike

I've read this essay. I don't agree with him. There is no convincing causative leverage displayed in his hypotheses, either. It's broadly hypothetical and tends toward too many simple non-interactive effects. (Too much "x therefore y" without any mathematical evidence that such would really occur. Correlation by speculation is seldom scientifically valid.)
The Professor

[no_hypocrisy]

10. OK. It was the only thing I could pull up for you at this time of the

morning. I'll try to find something else.

[ProfessorGAC]

11. I'm Not Looking For Articles, N_H

I've written my share of articles on related subjects. I'm looking for someone who is actually worried about this to show me econometric proof that i should be equally worried. My analyses indicates that such a concern is unfounded.

And, one more note: The concern over the oil bourse is one of the primary motivating factors in the PNAC effort to colonize the middle east. You sure you want to buy into THEIR economic theories?
The Professor

[sendero]

16. I would be equally interested...

.... in anyone pointing out any time when a consensus of economists have predicted major economic events that DID occur, such as the great depression, the crashes in the 80s and early this decade.

I don't think it is a stretch at all that if oil starts trading in Euros, it will hurt the dollar.

[ProfessorGAC]

18. Well, I Do Think It's A Stretch

The U.S. economy achieved dominance when the British Pound Sterling was the dominant currency of world trade. When the dollar became the dominant currency, when did the British economy collapse? I thought so.
The Professor

[sendero]

25. There wasn't s huge overriding...

... commodity trade in pounds sterling if I recall.

I don't claim to know the future but the forces arrayed against the value of the dollar are many, not the least of which is that of our government printing them like there is no tomorrow.

The planned hiding of M3 is not a good sign either.

[ProfessorGAC]

26. Sorry, That's Not Correct

Monetary exchange as a commodity started in the 1890's. In addition, the currency of cotton, wheat, sugar, was in pounds until after WWII, and oil didn't convert until the 1930's. The pound was by far the dominant global trading currency for nearly 100 years. Yet, when that changed because their economy was just not dominant compared to ours, there was no economic catastrophe.

I'm concerned more about the deficit and debt than the trading currency. The dollar will still be needed. Since that is our one and only currency, that's the only way we could buy the euros to buy the oil. The demand remains unchanged. There is just another layer of exchange, all done with electrons and bits and bytes, in a microsecond.

The Professor

[sendero]

31. Ok....

... I guess we'll have to wait and see. As I've said in so many words, I don't put a lot of stock in "economic conventional wisdom", and you are firmly outside of that with your opinion, so nominally I should agree with you.

Conversely, while I don't put a lot of stock in such prognostications, I do put a certain amount of faith in the markets themselves. There is a reason gold and silver is going through the roof, and I don't think it is an anticipation of strong demand for jewelry :)

The Fed has printed 2 trillion dollars in the last 5 years. They show no signs of stopping, basically they are fighting to keep the economy afloat with massive liquidity (IMH undeducated O).

This will eventually cause the dollar to drop, I don't see how it cannot.

on edit: one more thing. A falling dollar, in an of itself, is not necessarily an economic calamity, it causes some problems but it ameliorates others.

[ProfessorGAC]

32. However, I Put Little Faith In Speculators

The track record is pretty spotty. I think the odds are not much better than 50:50 that speculators will be a leading indicator. They may make money at the front end as those who get to the market late take the beating, but in the long run it still may be apropos of nothing.

And you're right: I'm as far from the mainstream of economic theory as one can get.

The Professor

[sendero]

34. Haha..

.. well there is no question that commodities markets are sometimes driven by speculators.

However, please address how the creation of money out of thin air can be indefinitely sustained :)

[ProfessorGAC]

36. Velocity Of Money

That's how it's worked for nearly 100 years! At some point, the velocity will reach equilibrium, although i don't think there's agreement as to where that is. At equilibrium, the ability to continue increasing wealth from mere exchange of other wealth will end. If i knew where that point was, and could prove it, that would probably be my next paper!
The Professor

[sendero]

44. If you place a graph...

... of wealth created in this country (GDP would probably not be a good number, I'm not sure what would but this is theoretical anyway) on top of a graph of money created by the Fed, I think you would find that the creation of money has far outstrpped the creation of wealth in this country.

And assuming that to be true, I find it hard to believe anyone would seriously think it can continue indefinitely.

But that is merely my opinion.

[ret5hd]

22. So, what you are asking for...

is for someone who is not an economics professor to:

1)provide econometric proof that the negative savings rate for the first time since 1933 is bad
2)provide econometric proof that printing $2B + per day, every day, 365 days a year, in new money is bad
3)provide econometric proof that massive offshoring of jobs is bad
4)provide econometric proof that china, japan, and the rest of asia will at some point decide they own more than enough u.s. debt.

PLUS, this person HAS to buy into the entire PNAC doctrine if this person believes that a major supplier of the worlds oil selling this oil in euros rather than dollars MIGHT upset a somewhat delicate balance created through decadees of world dependance on u.s. dollars

Man oh man...sorry, i'm going to have a hard time meeting those criteria. I guess i better go sign up for those college courses today. AND join PNAC. I'll get back with you in 6-8 yrs.

OR, I could just join you and say "Be Happy. Don't Worry!"

[ProfessorGAC]

30. Actually, You've Changed The Criteria

Some of those elements are indeed a basis of concern. I don't deny that. Debt and the reduction of the strength and size of the middle class are clear and present concerns.

But, none of those have a thing to do with the collapse of a economy. They may have a clear and provable drag on its future, but not in a short term precipitous way.

And, i challenge you to show me one post i've ever made here that suggests i don't consider debt and offshoring a problem. You won't find it.

Lastly, yes; i would like proof that the balance as you describe is as delicate as you say. That's the point of contention, and you should have been able to glean that from the original post. The currency balance is NOT THAT DELICATE, and it never has been. The balance isn't delicate simply because you would like to believe it is. I'm asking for verifiable theoretical and mathematical proof that it is. And, your snideness is not a substitute for proof.

Now, given that i've expressed concerns about the direction of the economy HUNDREDS of times on this site, you go sing "Be Happy, Don't Worry." And i'll go worry about the things that need to be worried about! The exchange currency of oil is not provably one of them.
The Professor

[ret5hd]

40. I don't think i changed the criteria as much as pointing out...

inter-related items that seem (to me, at least) to be combining to disrupt the delicate (to my perception, at least) balance.

When the u.s. now (in our hypothetical scenario) needs to buy euros to buy oil (which is not entirely true, unless the entire oil producing world starts selling oil exclusively in euros) what happens to the value of each? Does the dollar get stronger? Of course not! The euro, being in higher demand, increases in value relative to the dollar. And what are those europeans to do with their new found dollars? Buy more u.s. debt? Maybe for a while, until someone (anyone) catchees on that owning debt in a devalued currency is a defacto tax...and a losing situation. Then someone (anyone) decides to decrease their ownership of u.s. debt...it doesn't have to be a sell-off, merely a net reduction, buying less than the amount they own that is maturing. Then gradually, a sell-off starts, building, steepening, until the sell-off becomes a crash.

Can I prove this? Of course not. I'm not sure i could prove it if i WAS an economics professor, or even if such a thing IS provable. And I think we can both agree that the scenario i outlined above is an oversimplification of a very complex problem. But I believe it is a possibility.

As far as my attitude, your attitude is somewhat condescending also...hence my attitude. It reminds me somewhat of Industrial Engineers i have worked with on various projects in the past. They would submit a design, I would start to manufacture the item as designed, and I would spot something. A weakness, or a possible improvement. Some engineers would dismiss my suggestions out of hand, being as i am nothing more than an uneducated yokel machinist. Sometimes I would be right...sometimes i would be wrong. But all of them at least listen closely when i approach them.

So, while my formal training and professional background doees not meet your benchmarks, my informal life skills and lifelong observations tell me that a collapse is at least a possibility. Don't take me wrong...I hope YOU are right and i am wrong. Why? Because the remainder of my life will be a lot easier if YOU are right.

But please forgive me, and refrain from ridicule, if i make what you might consider foolish attempts at alleviating any future hardships for myself and even suggesting that otheers do likewise.

Good day, sir.

[ProfessorGAC]

43. I Apologize

If i seemed condescending, i will accept that as an error and apologize. That was not my intent.

And, i certainly do not disagree with your view of the extenua. Those are concerns. Once again, my whole distaste for this particular topic is rooted in the currency issue, and the direct fact that Bill Kristol is one of those who thinks that is a principle issue. In my experience, if Kristol believes it, it's wrong.

As to all the other issues, you will find it impossible to find any post i've written that doesn't express similar concerns.

One Last Point: In the last 60 years, there is almost no evidence of sudden and precipitous changes, negative or positive in any macroeconomy of consequence. So, these concerns, while fair and reasonable, will have an effect over decades, not months. Any negative impact will be gradual and continuous, not catastrophic and instantaneous.

The Professor

[ret5hd]

45. peace n/t

[converted_democrat]

46. I'm worried, but I don't exactly know why....

My grandfather (first generation German) who was a depression survivor, died shortly before *'s second term started.. He was one of the brightest people that I've ever known when it came to money.. He always played the safest bets, and he always came out on top.. He was a very reasonable man, and in all my years of knowing him I never once saw him panic over anything.. Ever..He had no emotion, he was the "rock" in our family.. The week before he died he called me every day, some days twice a day.. Saying this.." XXXXX, please go out and buy some metal.. Buy some silver and buy some gold.. I want to know that your safe when I'm gone.. What this country will endure will be far worse than what even the Germans and Russians did.. Please go and buy some metals, so I know that you'll be able to feed your family.. You do not want to be in a position where you have to carry a bucket full of money down to the store to buy a loaf of bread..Every empire falls XXXXX, every empire falls.. There are too many parallels, just too many parallels." He called a dozen times saying that over and over again..(Plus the couple of times I wasn't home, he left the same message on my machine..) My Mom told me to dismiss it as a product of the pain medication that he was on, but I just could not get it out of my head.. I don't know enough about history to know what he meant about the Germans or the Russians.. All I know is that my Papa was a really bright man, and he never asked or begged for me to do anything like he did this.. I'd never heard that "shake" in his voice before over anything, even when my uncle (his son) died..

I worry, but I don't really know why.. I know my Pappa was trying to keep me and my family safe from something, I just don't know what it is.. He really feared that "something" was going to happen in regard to our currency.. I don't know what that "something" is, but he was really worried about it.. Maybe it was the pain medication, I don't know.. All I know is that he was really upset, and he wanted to keep me safe. I worry, but I don't know why.

[HereSince1628]

12. Well, here is a summary, sort of, of things (tinfoil?) on the web

I am not an economist. I have no idea how worried to be. But this is the story as I understand it.

The shift to Euros, or other payment would weaken demand for dollars.
Lower demand would in itself lower the value some. A shift away from dollars would also mean that countries would generally need reserves in something other than dollars. The treasury bills that now float the US debt would no longer be in demand.

We would have to start paying the debt with real revenue. Obviously the US hasn't the revenue to do that. Unlike the past, the debt is largely foreign owned, so we can't just write it off the books. Whoever is stuck with the maturing US treasuries will want payment as real money. The US hasn't enough real money to do that. Rather than default, the US will "print" more money, guaranteeing dollar devaluation.

Is this really gonna happen? Maybe, some folks see clues of it in various actions. Domestic preparation for this future day has been seen in that Bush/Cheney are no longer reporting the M3 money supply. Overseas, international preparation is seen in China, India, Japan, and Russia as all have begun to seriously invest in gold.

Something on the order of a 30% drop in value is expected soon by some of the bloggers. That's enough to be really painful with respect to import prices. But it's not enough to make our labor costs truly competitive. Outsourcing overseas would become even more attractive as foreign material and component/assemblies become more expensive for US manufacturers to import.

Depending on how quickly the dollar falls away from the international trade standard, the dollar will either descend slowly or like a rock. Some people see the American economy of the mid-2000's becoming as soft as that of Argentina in the last third of the last century.

[ProfessorGAC]

19. Sorry. There's A Flaw In Your Reasoning

This whole demand for dollars thing is a flawed concept. Just consider this:

If the oil needed to bought in euros, how would the U.S. get the oil? We would buy euros with dollars. Right? That changes the demand for dollars how?
The Professor

[HereSince1628]

27. It's NOT my reasoning. How much clearer could I have made that?

It is simply the story as I have read its various incarnations, from the first petrodollar scare pieces in the late 90's til now.

I never said it is real or credible, indeed I suggested tinfoilery in the subject line.

[ProfessorGAC]

28. Sorry. I Misread It

I should have said there is a flaw in THE reasoning. I explained why. No offense intended.
The Professor

[Warpy]

13. The only mystery is why it's stayed this strong

considering the profligate spending on the military and wars of corporate convenience while the American people are being beggared to the point that the tax revenue that was supposed to flow from the working public has decreased a little more every year. That's one of the effects of cheap labor conservatism, you see, lower paychecks produce low tax revenue.

The country's financial house is on the brink of sliding into an abyss. The fiat dollar was always backed by a sound manufacturing infrastructure and solvent government. Both those things are now in the past. Banking has been playing with fire for years, issuing unsecured credit at high interest to people whose income has been dropping steadily for 30 years and who have little hope of paying back the principal and can barely keep up with the interest. If enough of those people simply start blowing the banks off, the disaster will be massive. That's the real reason for that appallingly bad bankruptcy bill last year: the banks know this.

The dollar has already lost 40% of its value against the Euro, and much of its value against even third world currencies. The prospect for a continued slide is good, as there's nothing holding it up now except habit, hot air, and wishful thinking.

[ProfessorGAC]

23. The Ongoing Deficit Is A Far Greater Concern

We have incontrovertible evidence, on a macroeconomic scale, that countries, including the United States in the 60's and 80's, cannot bolster the economy on borrowed dollars, for more than 6 to 10 years. The recession that we had in the 70's was not solely caused by the oil embargo, but was moving in on us before OPEC did what it did. The oil issue accelerated and exacerbated it, but we were heading into a bad place anyway.

As to the 80's, that borrowing saddled 41 with a deficit that was predictable starting in 1986. Most economists in the analytical school predicted a fall in economic growth, employment levels and median income at that time, and those who did were correct.

I'm much more concerned about the false bottom formed by excessive debt, even though it's not yet critical. But, the more we borrow, the easier it gets to hit the threshold. That needs to stop. And since, their is no convincing evidence that modest increases in marginal rates negate economic health, we should focusing on the revenue side by dumping the useless tax cuts.

That is a far more real, and provable concern, than the iranian oil bourse.
The Professor

[Crazy Dave]

3. Sad to say but...

You really can't count on anything these days. I gave up one trying to get better returns on my savings. I just put the money into regular savings and IRA's and just leave it alone. Gold is recognized and can be used as currency worldwide but I don't invest in anything that advertises on late night TV or on the radio.
If the whole world goes to shit and we go back to bartering, bullets and toilet paper will get you more than a gold coin will.

[KharmaTrain]

15. The Bus Sorta Left The Station...

Buying Gold now is a real crap shoot. The latest run-up sure looks good, but then this was the first gold has had in over 25 years. If you buy gold now, you take the gamble that there'll be another run-up...but you may have to wait another 25 years for it to happen. Or hedge the bet and think like many of the "financial minds" I read think...the price will go back down...to around $400-425 an ounce in a year...still a money maker for those who have long held gold, but not enough to scare off new investors. I'd also look at other precious metals. When one goes, the others tend to bounce around pretty good. A friend of mine plays those all the time and just sold a lot of his gold and has invested it in a variety of metals.

Euros were one hell of a bargain two years ago...and this is soon to be the world financial standard (thanks to fukstick and his kleptocracy)...as a steady investment, Euros are as solid as any currency. However, just like how we're dependent on oil, so is the Euro...if our supplies are tight, so is Europe's and their economies and the Euro in general sputters along with ours. What's made the Euro look so good is how badly the dollar has fallen in recent years and the endless defecits and outstanding debts. Other than a vulture creditor, who really wants to invest in this country or the dollar these days?

Honestly, I'm seeing and hearing all sorts of "advice" out there. Much of it gets circular filed, but those that I call upon are as clueless about what to expect in 6 months or a year. The dudes who were saying how "hot" the market was a month ago, sure aren't chirping that right now.

I'm convinced this regime is stifling the real story of inflation and the state of the economy...lest the dollar plunge even further.

[lectrobyte]

20. The OP is talking about a worst-case scenario, I think... in that case,

it makes sense to have some gold in case the shit hits the fan. You might lose money on it, but it'd be better than losing everything.

[lectrobyte]

17. Someone posted this link in a thread about the bourse

I'm convinced to be as diversified as possible, and to hold some gold.

http://www.masternewmedia.org/news/2006/01/23/the_iranian_oil_exchange_proposal.htm

[htuttle]

21. Canned goods

Soup, beans and maybe a few dozen cans of Spam would all be good investments in a situation like that.

[Citrene]

24. It is only a question of when. Get your passport ready.

Sorry.

[no_hypocrisy]

29. Are you sure this isn't a case of "You can run, but you can't hide"?

What if a collapse in the U.S. economy has a ripple effect on other economies? Repatriating might be going somewhere "not as bad" as the U.S., but still bad.

[texanshatingbush]

33. Seems obvious

buy Exxon stock. The higher the cost of oil the more they profit, hence the value of the stock continues to increase.

[No Exit]

38. The bourse will hurt RICH people. I mean REALLY rich people.

I'm not talking about "well-off" people. I'm not EVEN talking about my friend's sister who has an interest in oil and natural gas rights from their family's property in Mississippi. She's in the "millionaire" range. (Pshaw!)

I'm talking about BILLIONAIRES and TRILLIONAIRES. People like the Bush Crime family and the Cheney crime family. (I didn't capitalize it for the Cheneys because they are nouveau at cheating compared to the Bushes.)

I honestly think the bourse will make very little difference to the rest of the people.

I am sick of the repukes' fearmongering of us, saying or implying that "if businesses have a bad year, it costs all of us." BULLSHIT.

EACH and EVERY business downfall for one particular rich guy is an OPPORTUNITY for someone else.

I am not finding fault with your question, b/c frankly I think your question shows that you already grasp the point I was trying to make above.

[sinkingfeeling]

39. My rich, Republican brother-in-law says to buy guns and ammo. Says

if economic collapse happens, they're the things people will want!

[newportdadde]

41. Whats fascinating for me is that the house of cards hasn't blown over yet.

I'm a bear I admit it, a big time bear. I watch for news stories about jobs etc thats how I engage, I try to get a feel of just regular life. For instance now that everyone is touting gold my spider sense says its time to get out, the smart money is done and is getting ready to fleece the sheep. My father has worked at the post office over 25 years he throws flats. He watches for small town newspapers and front page headlines, almost everyone he sees now is "Plant closing, 300 out of work." etc, this is occurring all over the country. These are the kinds of things I look for.

I became good friends with a millionaire who made much cash in the late 90s. I speculated with him at the time that if money was moving from stocks it would search for a safe haven especially during a time of war, I predicted Gold. I was right I just didn't have the liquidity to get in back then(low 300s, NEM at 30ish etc).

I should have seen housing as well, it makes sense looking back on it, I could have made money in some REITs I'll chalk it up as experience for the next cycle.

In summer of 2004 I set down one day mulling over the gas prices going up and I thought to myself two things. The first is I should have bought Halliburton 2 years ago, the second was given Iraq, the rumors of peak oil etc and a decent chance * would get reelected there had to be an opportunity there, thats when I targeted oil. I bought into an oil EFT and its done well these past 18 months.

I'm not sure were the place is to be now, perhaps commodities still. The one thing I do know is we cannot maintain our spending, our trade deficit and our erosion of jobs. We print out money so fast it makes your head spin.

Perhaps we will just slowly pull back our standard of living and it won't be a collapse I don't know. This is such a hard time for me personally to see a path because I simply can't believe its continued on as it has.

The following must have a reckoning:

1) Overvalued homes owned my individuals who used 5% down 15/30s to purchase them. Then we have the even worse ARMS, and the even the nastier ARM interest only no money down loans.

2) Erosion of well paid American workforce who forms the basis of our consumer driven economy. First it was the blue collar workers, now its the white collar force.

3) Piss poor savings rate and Americans pouring debt onto themselves. Personally I believe this is due to the erosion of worker pay and benefits but people attempting to maintain the same standard of living.

4) Various monetary policies, trade deficit, expensive wars etc.

[antigop]

42. Warren Buffett is buying foreign currencies, isn't he?

n/t