Question for the Armchair Economists
I have a couple of very specific and direct questions that I'm looking to find answers to.
1. If you had to pick a currency to put your money in, which of the following would you pick and why (Again, I know gold, swiss franc, yada yada, please stick to my question)?
A. US Dollar
B. UK Pound
C. Euro
D. Canadian Dollar
E. Chinese Yuan (Hong Kong dollar not the Renminbi)
F. Japanese Yen
We are seeing signs of inflation on the rise. Given that there are still 3-4 trillion dollars worth of foreclosures on the horizon (CRE, Alt-A, and option ARM) that would result in a 150-200 trillion derivatives collapse (by comparison, subprime's collapse of 1 trillion wiped out 50 trillion in the derivatives) and due to the 30-40:1 leveraging, what will be the result?
2. Given the above scenario, i.e. current inflation trending toward hyper, combined with near term (2010 and 2011) massive losses from CRE, Alt-A, ARM, which scenario is most likely?
A. Accelerating inflation rate leading to hyperinflation as infestors seek a flight to quality towards gold and swiss francs and others.
B. A return to deflation as the weight of foreclosures wipes out $200 trillion in dollar denominated derivates, temporarily strengthening the dollar, and overwhelming any efforts of quantitative easing. Also, leading to a temporary reinflation of the bond bubble.
C. Inflation now, followed by deflation from erasing 150-200 trillion dollars out of existence caused by the collapse in the underlying securitized assets peaking in 2010 and 11, followed by another much more extreme bout of hyperinflation and complete dollar collapse.
D. Something else. Like say, Bernanke is a genius and deftly rather than daftly manuevers us to stability.
Quantitatively speaking
Americans never saved money, it would seem to me that what little they had would be worth more ?
One small example why - recently I got the urge to buy a new house in a retirement community that was 73 % sold out pre real estate bust. Not surprisingly, this billion dollar developer according to sales statistics on independent web-sties has not sold one house since last quarter of 2008, and the developer is advertising over $40,000 price cuts on models, along with seller buy-down 4.625 % mortgages and up to $15,000 credits if your present home sells under appraisal by their real estate agents. Not to mention the $8,000 tax credit for first time home buyers. Not.
Sounds like cash is in short supply and things are getting cheaper to me. I think cash is king going forward and interest rates moving up show the demand for borrowers paying more for it. I know - dollar weakness causes higher interest rates, but when in history, did gold soar when consumer tangible prices tumble ? In the '80's interest rates went up when there was too much cash chasing too few goods [stagflation]. Now too many goods chasing not enough money and interest rates are going up [pseudo-deflation]. The government intervention stimulus packages are designed to re-inflate us back to where we were, more cash for Americans to spend that will weaken the dollar in time when the consumer gets legs again, not in the present.
How can the dollar be loosing value domestically when everything except gold and oil is cheaper ? Major grocery stores in Chicagoland are advertising 20 % price reductions on what you buy, restaurants are having on-going discount promotions, no interest on new cars purchases. If oil wasn't manipulated it too would be coming down (over supply). Saudi Arabia sold it's gold in the '80's to eat (bankrupt) , and you know which way gold went then...
China has arable land per capita equal to the Bangladesh mean and worsening. Jimmy Rodgers IMO has it wrong, China is a catastrophe waiting to happen !
Cheap Advice
1. F Yen or G Australian Dollar
2. 30% deflation in real estate, equities, bonds. The massive INFLATION in commodities and low order consumption goods is already underway. It is unstoppable. There will not be another flight to the dollar or treasuries as the expectation now is that they are going down in the short and long term horizons. SHORT US TREASURIES!
A. The only way Bernanke could soak up his $3 Trillion in quantitative easing is RAISING RESERVE REQUIRMENTS as they hold NO assets that anyone will want to purchase without deep discounts. This would cause a crushing contraction in money supply, destroy the banks, and trigger a severe depression. It is politically untenable. The democrats would abolish the fed if he tried this and the Congress would become the central banker. We all know where that would go.
http://goldsteinrepublic.com
Your first question is
Your first question is confusing.
If I had to put my money into something? From where am I starting? Am I starting with FRNs? Then to put them into another currency means trading them with money changers, how much are they going to charge me for their commision? When you trade FRNs for Canadian dollars you pay a percentage. Again I would just go ahead and spend it on food, supplies, land, something of tangible value. There is not one currency that you mention that is not fiat. So best to play hot potato and pass it along.
So to answer your question I would just go ahead and spend them, since they are not a good way to store wealth, too risky and foolish.
grant
iehuvihs, Currency
iehuvihs,
Currency transactions in my Etrade Global account do not incur a transaction fee. In other words, FREE.
I don't know much about
I don't know much about Etrade Global accounts, but I imagine you can't use it to go to Taco Bell, or if you can there is probably a restricted list of corporations that you can spend your Etrade credit with. Am I correct? If so then it is basically a way to control your spending habits.
grant
Thanks for clearing up your question.
That's interesting, do they send you the currency or does it have to stay in the account?
What options other than the ones mentioned above can you choose?
Can you choose SDRs?
1 - I'm not betting my
1 - I'm not betting my future ON a fiat currency, I'm exploring strategies to bet AGAINST the US dollar.
2 - "The Fed will be forced to let the Bond market collapse..."
I think your statement is supported by the recent comments by the Fed that setting long term interest rates is not a priority without mentioning that it is because they have lost control of long term rates.
"I expect another round of SHTF sometime in August-September of '09."
Do you have any speculation as to what would serve as a likely trigger for the next SHTF scenario?
Bet Against the Dollar by...
Shorting Treasuries. There is a mutual fund RYJUX and and EFT "PST" that do this. As interest rates rise, these assets rise in value.
http://goldsteinrepublic.com
I get that
1 - But that isn't what is happening. It's sort of like claiming that you are voting "against" Barack Obama, by voting "for" John McCain" No, your vote is not "against" Obama - it is FOR McCain. By switching funds to be held in another currency you aren't betting against the dollar, you are making a positive bet for that other currency. And the safety and utility of your savings are held hostage to the value of that currency. I'd also look into which if any of those tie their value in any way to FRN's. In that case, you're defeating the purpose entirely. If by holding less FRN's the value of the FRN decreases, but the value of your chosen currency is tied to the FRN then the value of your new currency ALSO decreases. Not a good idea.
I see money as having two purposes - a store of value, and utility in trade. Fiat currencies have very little of either. Tangible assets however have both. The trick is to pick which assets for the purposes you need. If you already have shelter, land, food, clothing, protection, etc. then the most historically proven choice left would be gold and silver, then maybe crops and energy resources. And I don't mean to "invest" in them, but to physically own and posses them. There is little or no security in "investments" you can't touch with your hands.
There is also the issue of having actual access to those other currencies physically or if they have to be converted back to FRNs when you want to spend them. (also is there a charge for 'delivery' or 'maintenance' fees?)
2 - It is still too early to tell what the trigger will be. This is usually one of those things only possible in hindsight. But I would say the MOST likely candidates:
a) A complete Bond auction failure would do the trick. The yield would go vertical and within days or weeks there would be serious unrest in Washington when it becomes clear that they cannot finance the debt. Rollovers will cease and current securities will fall past due. Foreign media will quickly pronounce the "death of the Federal Government" and talk will begin by foreign governments on how to collect their investments. This will NOT be able to be censored 100%.
b) would be problems related to the GM bond issues and pension raiding that is currently on the table. If Citi and JPM can't raid the pension funds (which is illegal in a bankruptcy) then you may very well see one of them fail. I think they are counting on that cash to float past another iceberg called "commercial real estate."
Even with the GM/UAW pension cash heist, the collapse in commercial real estate may still sink one or both of those banks. Even worse, would be a continued draw down in the FDIC coffers in the meantime so that the agency couldn't handle a seizure like it did WAMU. There really are no banks left that have enough capital to be forced to buy one or both of them up either ala BoA.
The alternative to a "collapse" of Citi or JPM would be an outright nationalization of them or even the entire national banking system. (this would leave non Fed/FDIC state banks alone) and cause a flight to safety like never seen before. Even some very sound state banks might take a hit due to people not knowing the difference and yanking their money out.
I think the only reason the FRN is still around is no one is yet ready to live without it. As soon as they are, it will collapse. (that's why I'm ALREADY able to live without it if need be)
Life right now reminds me of my days back in H.S. policy debate when every scenario led to "nuclear war." It's kind of like that but not as bad. There are all sorts of ways we can get from point A where we are standing to "systemic SHTF" by Aug/Sep. My concern isn't IF we will see it, but how bad it will be and will a reprieve follow as it did last October. We came very close to "the big one" then. Regardless of what actually transpires, I don't think TPTB are going to be able to remain TPTB for very long.
The reason why the trigger doesn't concern me is that I'm am now effectively insulated from it. I no longer have any "investments" in the traditional sense, so I'm not worried about parking in the wrong spot. I am increasingly becoming self sufficient and am prepared to stand my ground. (and capable of surviving on much less than I do now) My only concern is not knowing if I need to stay put, or get out of Dodge. I'd rather stay put. But I understand that living in a city of 120K+ people, that may not be feasible if it gets really bad.
False choices
1 - I would NEVER bet my future on a fiat currency. I use FRN's because I live in the U.S. I spend them as fast as possible and buy tangible assets. (if I have anything left after food and bills that is)
2 - E - something else, that does not include Bernanke being a genius. The Fed will be forced to let the Bond market collapse but not until Treasury lets them know that military contingency plans are fully a "go" to handle the fall out. If by chance, the Fed can manage to forestall a Bond Market collapse, hyperinflation will kick in sometime late this year, but will not be publicly acknowledged for sometime, if ever. In either scenario, the Federal government will collapse and the States will resume their original roles long before it all goes to pot. A few States with the largest cities that will by then be under martial law, will likely be "federal holdouts" but the rest of the country will start to recover once the weight of the government in D.C. has been lifted off the people. I expect another round of SHTF sometime in August-September of '09. This may not be the final nail in the coffin. But it certainly has the potential. I would expect the White House to be in a "bunker" mentality by then with the "FRN" aka the "Dollar" falling like a banker jumping off the top of the Empire State Building. (which means it won't stop until it goes "splat")
p.s. - please stop using the term "U.S. Dollar" when what you really mean is Federal Reserve Note. A U.S. Dollar is 371.25 grains of .999 silver. Has been since 1792 and without a change in the law, will continue to be.
A "Dollar" is not a Federal Reserve Note and a Federal Reserve Note is not a "Dollar." I know the rest of the world doesn't get it, but they didn't get a lot of other things before we started shouting them from proverbial roof tops either.
Be smart
Given you have told us to stick to the question
I would say
1 C
Because the Canadian dollar is resource linked. Whoever is left in power will still need resources.
You are trying to avoid inflation, but exposing yourself to currency risk.
You want to mitigate that currency risk, so i would suggest buying currency in the country that you wouldn't mind moving to or spending a holiday in. That way if it collapses you can just take a nice holiday or move there.
You forgot on your list the NZD/AUD that is a mistake. NZD traditionally has the highest real interest rates in the OECD. This offsets a lot of the risk. AUD is also a commodity linked currency.
2 B given your assumptions
The effects I think would take place would be similar to what has happened now.
The first effect would be strengthening of the USD as people know when the us sneezes, the rest of the world gets a cold. (people move their money out of risky economies into safer ones, ie away from russia into USA/U.K etc)
The USD going up is deflationary.
The second affect is demand drops as people and banks clam up.
This is also deflationary
Thirdly derivatives are a form of virtual money, when they reduce, the money supply falls.
This is also deflationary
Twitter: https://twitter.com/#!/youownyou (quotes)
Website: http://www.own-yourself.com (Under construction)
With regards to sticking to
With regards to sticking to the question, my 1st question was very directly worded, as these are the only currencies available to me in my Etrade Global account. If you have a better idea, I'm all ears.
Given my assumptions in question 2, do you think these are fair/accurate?
Spreadbetting
I have a spreadbetting account.
This allows me to buy futures in most major currency's. It doesn't require that I own any of the currencies, just that I maintain a margin and allows for leverage.
Also here in the U.K gambling profits are not taxable, so any profits are tax free. No transaction fees. But they take a small portion on each purchase and sale in the "spread" .
I would stick to what the other user said about commodity based currencies.
I used to have a lind-waldock account in the USA and they allowed my to buy proper futures on almost any currency. But these were highly leveraged.
Twitter: https://twitter.com/#!/youownyou (quotes)
Website: http://www.own-yourself.com (Under construction)
I understand why you listed those currencies
but my question to you is why are you wanting to park your security in a fiat currency in the first place?
If you absolutely must do so, I'd say pick one that is somehow tied to a commodity and one that is used where you'd move to if you had to. The point here is utility. It isn't useful if it's value collapses, which a commodity tied currency will be less likely to do, and it is likely only useful where ever you live. Where you live can be changed by you. The value of the currency cannot be.
It's part of an overall
It's part of an overall strategy, but the main reasoning is that everyone needs to have part of their holdings in something that is highly liquid and accepted by merchants that we'd need to do business with. As yet, I can't go to Taco Bell and pay them a dime of junk silver for a taco. These other fiat currencies, as crappy as they may be, are easily convertible back into FRN's that businesses accept.
understood.
The answer to your question then may change rapidly on a daily or hourly basis. A fluctuation in the wrong direction may wipe you out or at least wipe out any 'progress' you made previously. Check out Jim Rogers and see if his currency of choice is listed in your options. He knows more about which are safer that you don't have to watch constantly.
Don't wory about, it unless
Don't wory about, it unless you are buying overseas.. There will be an exchange rate anway ..Pick the one you believe will live the longest..
you-no
Man, Coreadrin, I'm going to
Man, Coreadrin, I'm going to be spending a couple of hours tonight reading your blog. You've got some good stuff on there.
Thanks man! Spread the word lol
Progress is precisely that which the rules and regulations did not foresee. - Ludwig Von Mises.
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Progress is precisely that which the rules and regulations did not foresee. - Ludwig Von Mises.
euros seem to be the most
euros seem to be the most stable at the moment.
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"Master Blaster runs Bartertown!"
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"Jeffy likes apples." -Jeffy
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Norwiegan Kroner
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Have some
of each.
Prepare & Share the Message of Freedom through Positive-Peaceful-Activism.
I'm not an economist, but my business made approx.
$30,900,000,000.00 or so more than General Motors last year. So since they are considered such savvy business people then I must know a little myself.
I like physical Gold & Silver that I can put in my own safe. I won't get rich off of it but I won't lose what I have ether. I think it will adjust itself for the hyper-inflation we have coming.
"What was taken from the boomers, it ain't there, what was taken from the X'ers it ain't there, what is being taken from their great, great, great squared grandchildren it ain't there. Some generation just has to have the guts to quit passing it on." Me
*May the only ones to touch your junk, be the ones you want to touch your junk.*
Coreadrin, since you are
Coreadrin, since you are Canadian, do you know any good dividend paying stocks up there? I have some money in Canadian dollars, but it's just in currency. I'd like to find a nice yielding (non-financials) company, but it's hard to find a good screener tool for the TSE.
One reason to like the Canadian dollar is that the currency seems to do well when natural resource prices are on the rise. And these commodity prices rise as the economy shows signs of recovery. However, since I do not believe we are in the midst of true recovery, I think the Canadian dollar's recent run will end if the economy turns south again, which I believe it will. So, I'm thinking about staying Canadian for a little while longer and then going with Yuan.
Anyway, I'm thrilled to finally get a couple of responses to my questions. Thanks guys.
Here's a little present! :)
I just pulled a couple of stock scans off of my brokerage account and threw them up on my blog for you - I usually put posts up whenever something is relevant or I feel a certain company / commodity / trade is worth noting.
http://investophoria.blogspot.com/2009/06/low-debt-canadian-...
Progress is precisely that which the rules and regulations did not foresee. - Ludwig Von Mises.
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Progress is precisely that which the rules and regulations did not foresee. - Ludwig Von Mises.
Wow! Mucho Garcias.
Wow! Mucho Garcias.
I don't know. Same goes for the winning lottery numbers.
Unfortunately, I don't have the answers to the kind of questions that would make you very wealthy playing the Forex markets.
If I had to *gamble* on a couple of fiat currencies, I'd go with the Euro and Yuan. But don't gamble any money you can't afford to lose. LOL.
Central bankers are a law unto themselves.
"Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini.
It's part of the whole
It's part of the whole strategy of diversification. As much as I like gold and silver, I just don't want to put all of my eggs in one basket.
And, I wish I knew Forex trading, but those guys play short term fluctuations between currencies, and I'm just looking to hedge against having all my money in dollars.
I look at it this way. Absolutely nobody I know has money in anything other than US dollars, save for the people I've "woken up" so to speak. So, if the dollar does ultimately collapse, we'll all be screwed, but with a modest amount of gold and silver and some additional money that is not in US dollars, I will come out relatively less screwed than everyone else.
Indeed.
If you split your fiat currency holdings evenly into Euros, USD and the Yuan the only way you'd lose is if all fiat currencies tanked at the same time. I think it is safe to say that.
But if you already own some physical gold/silver, six months or more of essential supplies and some other tangible assets I think you'll be very well prepared.
"Fascism should more properly be called corporatism because it is the merger of state and corporate power." - Benito Mussolini.
well
Fortune Favors the Bold
since all currencies are pegged to the dollar, and unpegging them would cause wild and unpredictable fluctuations, I would say in an inflationary scenario none of the above.
Fortune Favors the Bold