Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Strong US Dollar Illusion

Currencies / US Dollar Aug 15, 2008 - 11:40 AM GMT

By: Peter_Schiff

Currencies Economists who now see American troubles spreading around the world are predicting that foreign central banks will ignore the gathering inflation threat and follow the Fed down the rate cutting path. Similarly, they argue that since the downturn began here, the U.S. recovery will likely be underway while the rest of world is still decelerating. These assumptions have prompted a rally in the dollar, a sell-off in gold, commodities and foreign stocks, and have cast doubts on the ability of foreign economies to “decouple” from the United States. Investors should not take the bait.


America does indeed pose a global threat, but not for the reasons these economists suppose.  Foreign economies are suffering not because Americans have slowed their voracious spending, but because they are defaulting on hundreds of billions of dollars of existing loans underwritten by lenders around the world.

The conventional wisdom is that foreign economies depend on Americans to buy their exports.  This is false.  The global expansion of the past decade has created new demand everywhere, and people and businesses in all corners of the world are spending.  However, in America, spending has largely been achieved through a massive vendor financing scheme.  Foreign supplied credit has allowed Americans to continue buying, even while American income and savings have dropped.  As this credit goes bad, the losses are landing on the bottom lines of foreign financial firms.  In other words, the global pain is not resulting from American contraction but from having financed our preceding expansion.  This is a critical distinction few have been able to make, and it is vital to appreciating the decoupling that has already occurred beneath the surface.

The current losses that banks in Europe and Asia are now suffering are real, but future losses can be avoided by suspending future lending to Americans.  Shutting off this credit will of course torpedo the dollar, but that is precisely what must occur.  By allowing the dollar to drop to its natural, unsupported level, not only will the American caboose be decoupled from the global gravy train, but the rest of the cars will move along the tracks much faster.  Absent the U.S., there will still be plenty of consumers to buy what is produced, and plenty of investment opportunities for those with savings.  Rather than dragging the global economy down, such a development would actually un-tether it.

On the other hand, left to its own devices, the American economy will implode.  There will be fewer products for American consumers to buy and very little savings for anyone to borrow. 

Some foolishly believe that many of the world's problems result from dollar weakness, and that pushing the dollar back up would be good for all.  For example, since the weak dollar is contributing to the rise in oil prices, a stronger dollar should help bring prices down.  However, if foreign governments weaken their own currencies to push the dollar up, they will simply succeed in bringing oil prices down for Americans.  Oil prices will go up for their own citizens.  This can't be an attractive bargain for any European or Asian political leader.

The weak dollar is merely a manifestation of substantial structural problems underlying the American economy.  Unfortunately for us, the solution to those problems, as well as the global economic imbalances, can only be found in a weaker dollar.  Efforts to artificially prop the dollar up will only exacerbate those imbalances, and make its ultimate fall that much more severe.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Bo
22 Oct 08, 21:22
Strong US Dollar

a weak dollar is good news for the U.S, as the dollar is getting stronger now it is attractive for U.S companies and consumers to buy from abroad, this is good news but the flip side is the dollar is getting to strong,

the strong dollar at the moment is making purchases from the U.S less attractive, so this will come at the price of jobs within the U.S, as firms that rely on exporting goods around the world will have problems due to the strong dollar making the U.S prices to expensive,

Consumers and importing business will do well from the strong dollar, but this will come at a cost as it will slow down the U.S indust. businesses further due to the high and unattractive prices to the rest of the world.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in