[North-NV-Greens] Fwd: [ALD] Doom for the Dollar

[Paul Etxeberri]

>
>
>One word: scary
>
>http://www.forbes.com/economy/2005/01/10/cx_da_0110doomdollar.html
>
>Here's the text
>---------------------------------
>NEW YORK - The stock market is up and economic growth has been steady, if
>unspectacular. But, an increasing number of economists are seeing 
>serious storms build
>on the horizon. They point to ever-growing federal budget deficits, 
>a record current-
>account deficit, increased consumer debt, a real estate market that 
>looks like a bubble
>ready to burst, a surge in personal bankruptcies and the prospect of 
>inflation.
>
>  Meanwhile, interest rates are on the rise, and if they increase 
>much more, many of these
>problems could get dramatically worse.
>
>  Doomsayers tend to be ignored--until it's too late. This week, we 
>give voice to five
>prophets of doom, starting with Peter Schiff, CEO and chief global 
>strategist of Euro Pacific
>Capital.
>
>  Could the falling dollar mean we're in for a major financial 
>disaster? He thinks so.
>
>  He has been warning about the currency's fall for a while now. Even 
>though it lost a third
>of its value in the last two years against the euro, he believes it 
>will decline even further.
>But, the dollar's fall is more a symptom than a cause. The real 
>problem is that the U.S. is
>producing too little--and spending too much--and the result is 
>likely to be far worse than
>the happy-talkers on Wall Street will ever let on.
>
>  "We are going to go through one of the most trying financial times 
>in U.S. history,
>including the Great Depression," Schiff says.
>
>  Why Should We Care About The Falling Dollar?
>
>  "The basic problem," Schiff states, "is that Americans don't 
>produce enough, and don't
>save enough." Indeed, over the past 15 years, the savings rate has 
>fallen from over 6% to
>less than 1% in recent quarters. As a result, the goods that we are 
>consuming are being
>supplied to us by foreigners. Not only are they producing the goods, 
>but they are lending
>us the money to buy them, and, in doing so, are driving the U.S. 
>deeper and deeper into
>debt to the rest of the world, Schiff says.
>
>  As American industry has lost productive capacity, it has become 
>increasingly difficult for
>the U.S. to produce enough--and sell enough--to reduce that debt. 
>The massive U.S.
>trade and current-account deficits, now at around 6% of the gross 
>domestic product, mean
>that non-Americans are exchanging consumer goods today for consumer 
>goods they will
>obtain in the future.
>
>  The U.S. doesn't have the ability to supply those goods, Schiff 
>says. "We are using dollars
>that we print to exchange for goods that we don't produce. We have 
>to borrow from
>abroad as there are no domestic sources of savings, so the value of 
>those dollars will
>continue to fall."
>
>  How Bad Will It Get?
>
>
>
>
>Peter Schiff, chief executive of Euro Pacific Capital
>
>"Very bad," Schiff says. The dollar will fall a lot lower than it 
>already has--dropping by
>perhaps 50% against the Japanese and Chinese currencies. How will 
>the government
>respond? Could efforts to forestall the currency decline have a 
>perverse--and ultimately
>negative--effect? No matter what the outcome, Americans will have to 
>consume a lot less
>and save a lot more. Spending on cars, clothing and electronics will 
>all drop dramatically--
>perhaps right out of the economy.
>
>  What Caused It?
>
>  "We are a society that has lived beyond its means for a long time," 
>Schiff says, adding that
>while the trend has been evident for two or three decades, "in the 
>last five years, it has
>gone off the deep end." Americans are relying on foreigners more and 
>more to produce
>goods, rather than producing them themselves.
>
>  What Will The Results Be?
>
>  Americans will have to restrict future consumption or default on 
>debt, whether directly or
>indirectly.
>
>  "I think something in the near future--maybe early this year--will 
>make us realize the
>error of our ways," Schiff says. "Our creditors are going to stop. 
>They are going to bite the
>bullet," which means realizing we can't repay them in the way they 
>want and expect.
>
>  They will take a huge loss, but it will be necessary to check an 
>unsustainable process. At
>that point, the people of Japan and other Asian nations will be able 
>to consume a lot more,
>because they will send less of what they produce to the U.S.
>
>  "They will not be producing for us; they will be producing for themselves."
>
>  Meanwhile, to attract savings from abroad, the U.S will have to 
>increase interest rates into
>the double digits. This will cause a serious wave of defaults in the 
>real estate market and
>elsewhere.
>
>  "The further into the future this starts, the worse it will be for 
>Americans," Schiff says.
>
>  When And Why Will It Bottom Out?
>
>  "I don't know. A lot will depend on the government," Schiff says. 
>The debt to Japan, China
>and others has been building for a long time. The process will also 
>take some time to
>reverse. But, the analysts on Wall Street don't want to say this.
>
>  "They pull their punches, because they don't want to be 
>marginalized. But, the fact is we
>owe Japan a fortune; it's not the other way around." And that, 
>Schiff says, means the dollar
>will be heading south for a while.
>
>
>
>
>
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-- 
Paul Etxeberri

"Forests precede civilizations and deserts follow"   ---Chateaubriand