The Falling US Dollar

[billinchina]

The US Dollar has been falling in comparison with other currencies around the globe for quite a while now. Congratulations Canada, our dollars are the same now (actually yours are worth more than US dollars).

Things are starting to make sense. Rising stock market at record highs. Rising oil prices at record highs. Rising real estate at record highs (well, except for a recent dip). Dollar goes down, prices go up and records are set.

I see purchasing power being eroded as inflation skyrockets for certain items.

So, if things continue, be very excited about rising PPC and rising domain values. However, since dollars will probably be worth less, perhaps you will be no better off.

Just my observations...

 

[gou]

1. Your information is incorrect. The Federal Reserve is a private corporation owned by 12 major banks. Look it up.

2. The FED does print money. If Bernanke lowers interest rates that is printing money. Who actualy prints it is not of importance.

And yes that scares me, I think it would scare a lot of people if they knew this

1. The 12 regional banks do not own the Fed. All member banks hold the Federal Reserve Stocks. However, these stocks only represent membership and not ownership. Refer to the Federal Reserve Act.

2. Yes, figuratively speaking, the Fed does "print" money. However, this brings stability to the economy. Conspiracists make it sound bad by using the word "inflation." Let me use the word "unemployment" instead, since the two are inversely related.
When unemployment is too high, the Fed will use its monetary tools to stimulate the economy. These monetary tools are:
a. Open Market Operation
b. Adjustment of Discount Rate
c. Adjustment of Required Reserve Ratio
When unemployment is too low, the Fed will slow down the economy in order to keep inflation under control.

By the way, corporations make money while the Fed doesn't. Check out the audited financials.

 

[Porte]

The U.S. dollar has been weakening against european currencies, and high-yielding currencies amid facts that Federal Reserve Bank will continue to cut interest rates, thus narrowing the gap between interest rate of the US dollar unit versus other currencies. These currencies with higher interest rates such as Australian Dollar and New Zealand Dollar are also to benefit from this.

By the way, the USD now costs 0.9800 Canadian dollar unit, well below 1 CAD. So CAD is stronger than USD by 200 points.

More over, the USD is expected to weaken more incoming months with Euro expected to hit almost 1.50 USD..

Plain advice..convert your US dollars to Euros.. :D

 

[SLL]

The U.S. dollar has been weakening against european currencies, and high-yielding currencies amid facts that Federal Reserve Bank will continue to cut interest rates, thus narrowing the gap between interest rate of the US dollar unit versus other currencies. These currencies with higher interest rates such as Australian Dollar and New Zealand Dollar are also to benefit from this.

Plain advice..convert your US dollars to Euros.. :D

The same advice I was hearing at the top of the NASDAQ/Tech. market in 1999 and the same advice I was hearing from home buyers a year ago.
Buying something just because it is going up is not an excuse to buy.
It is not a fact that the Fed will continue to lower rates, although the market is now projecting it to do so.

Half of the posts in this thread talk about potential crashes and bubbles as the reason for the weakening dollar, but apparently no one believes this can occur in other countries or regions.
Others talk of a large U.S. budget deficit as the problem, but it has been high before and the dollar has never been this weak.

Do you go with the herd or your gut?

The U.S. economy is growing at 3-4% per year with historically low unemployment. This is not the horrific scenario of the early 1980's. Very far from it.

I am not saying the Euro cannot get stronger against the dollar in the short term. You never know how many speculators and suckers can get swept into the momentum of the weaker dollar.

The fundamentals say the Euro is overvalued compared to the dollar, but that thinking never stopped Tech stocks from having P/E's of 500 (or no earnings) or home prices climbing $50,000 every 6 months (this was occuring in California less than 2 years ago).

What is happening makes no sense...but it is still happening.

Tread carefully...and get back to me in a year with the value of the Euro.

 

[goodkarmaco]

Why is silver less expensive than gold? Because there is more of it. Just because there is not enough to reach the moon and back like there is with paper fiat money does not mean gold cannot be used world wide as a safe anti inflationary currency. The price would merely rise for the gold. You may only be able to own a gram of it. Some poor countries today have so many poor people that they only own pennies if accounted today. So surely you cannot count them as owning the same amount as a person in a better off country.

There is plenty of gold to go around. The price may rise, but the physical gold does not have to be held. The currency has to have it backed by the gold and be in physical strorage somewhere for this economy.

Yes in past times greedy governments have even ruined economies that were backed by gold. Take it account they may not have been democracies. Without the checks and balances that the metal provides then it is just to easy to inflate.

As the U.S money supply grew from early 2002 the price of gold and silver has rapidly climbed. As we got closer to the housing market (bubble) boom ending, the dollar plumented lower and lower. At the same time the bullion, ( gold and silver) started rapidly to climb in value.

Since 2002 silver has reached a price at about four times its earlier price. Today it stands at about about $13.45 a once. Gold being under $300. in 2002 is now ranging in the $750.00 area.

So lets talk economics, if you had a thousand dollars in the bank since 2002, you may have at the most about an extra $250.00 today.

Now if you had bought $1,000 worth of silver bullion in 2002, you would have about quadrupled your investment to a worth of about $4,000.

Why has the dollar taken a dive and silver and gold shot up? The U.S. government has been printing money at record breaking amounts. Since a year ago the money supply has increased about 14%. Our government likes us to believe we need no hard physical backing for our dollar, thus giving them the power to create money out of thin air, by way of the printing press.

The mining company can only pull so much ore out of the ground as it is in very limited supply.

A fiat run government can chop down a tree, create pulp, make paper and print some zeros on it. Doing that can give them the power to do anything from placing $300. square foot marble on their walls and floors to creating a trumped up war as they can monetize anything.

If they don't have enough money all they need to do is print more or add more zeros.

Gee, they are awfull special to be able to do that.

 

[pergamon]

Why is silver less expensive than gold? Because there is more of it. Just because there is not enough to reach the moon and back like there is with paper fiat money does not mean gold cannot be used world wide as a safe anti inflationary currency. The price would merely rise for the gold. You may only be able to own a gram of it. Some poor countries today have so many poor people that they only own pennies if accounted today. So surley you cannot count them as owning the same amount as a person in a better off country.

There is plenty of gold to go around. The price may rise, but the physical gold does not have to be held. The currency has to have it backed by the gold and be in physical strorage somewhere for this economy.

Yes in past times greedy governments have even ruined economies that were backed by gold. Take it account they may not have been democracies. Without the checks and balances that the metal provides then it is just to easy to inflate.

As the U.S money supply grew from early 2002 the price of gold and silver has rapidly climbed. As we got closer to the housing market (bubble) boom ending, the dollar plumented lower and lower. At the same time the bullion, ( gold and silver) started rapidly to climb in value.

Since 2002 silver has reached a price at about four times its price. Today it stands at about about $13.45 a once. Gold being under $300. in 2002 is now ranging in the $750.00 area.

So lets talk economics, if you had a thousand dollars in the bank since 2002, you may have at the most about an extra $250.00 today.

Now if you had bought $1,000 worth of silver bullion in 2002, you would have about quadrupled your investment to a worth of about $4,000.

Why has the dollar taken a dive and silver and gold shot up? The U.S. government has been printing money at record breaking amounts. Since a year ago the money supply has increased about 14%. Our government likes us to believe we need no hard physical backing for our dollar, thus giving them the power to create money out of thin air, by way of the printing press.

The mining company can only pull so much ore out of the ground as it is in very limited supply.

A fiat run government can chop down a tree, create pulp, make paper and print some zeros on it. Doing that can give them the power to do anything from placing $300. square foot marble on their walls and floors to creating a trumped up war as they can monetize anything.

If they don't have enough money all they need to do is print more or add more zeros.

Gee, they are awfull special to be able to do that.

Although I agree with your post you start wrong. Silver is not less expensive then gold because there is less silver then gold.

In fact silver is more RARE then gold. All the silver ever mined has been consumed. there are no stockpiles of silver. In the contrary all the gold ever mined is still here.

That is why gold in the first place is a monetary metal and silver these days in the first place an industrial metal (pc's, laptops,...) and in the second place only a monetary metal.
Silver has always closely followed gold and at this moment is underperforming gold.

All the rest you write is correct.

We are in a commodity super cycle now. Which probably has started in 2001. Commodity cycles usualy last at least 15 years.

Therefore it is safe to say that gold IMO will go to somewhere between 5,000-10,000$/ounce and silver will probably go to around 200/300$ an ounce before the cycle is out. Of course, then you sell everything.

Note that I say in $$$ because we don't know what the $$$ will be worth when those numbers are reached.

The same advice I was hearing at the top of the NASDAQ/Tech. market in 1999 and the same advice I was hearing from home buyers a year ago.
Buying something just because it is going up is not an excuse to buy.
It is not a fact that the Fed will continue to lower rates, although the market is now projecting it to do so.

Half of the posts in this thread talk about potential crashes and bubbles as the reason for the weakening dollar, but apparently no one believes this can occur in other countries or regions.
Others talk of a large U.S. budget deficit as the problem, but it has been high before and the dollar has never been this weak.

Do you go with the herd or your gut?

The U.S. economy is growing at 3-4% per year with historically low unemployment. This is not the horrific scenario of the early 1980's. Very far from it.

I am not saying the Euro cannot get stronger against the dollar in the short term. You never know how many speculators and suckers can get swept into the momentum of the weaker dollar.

The fundamentals say the Euro is overvalued compared to the dollar, but that thinking never stopped Tech stocks from having P/E's of 500 (or no earnings) or home prices climbing $50,000 every 6 months (this was occuring in California less than 2 years ago).

What is happening makes no sense...but it is still happening.

Tread carefully...and get back to me in a year with the value of the Euro.

You seem to be a very smart person. However you're missing a point. Since the '70s money has been reduced to debt. So comparing it with growth or bubbles makes no sense. When the money simply is over 10% a year doesn't it makes sense we have at least 3-4% growth? Where would all the excess money go to? Of course you are better off then 10 years ago but only in NOMINAL FIGURES. Not in buying power! You need to take out a bigger mortgage when you want to buy a house, everytime you fill your car you pay more,...

If you mease the DOW in real money=gold you will see that it has done NOTHING in the past 7-8 years.

That's the trick bankers use and once you look through the smoke screen and realise that money is debt when in fact money needs to be money you will understand that this party can't go on.

I agree with you that the euro is due for a pullback simply because it hurts EU exporters too much. So there will be a battle between the FED and the European Central Bank to lower interest rates (note that this is where the troubles started!)

 

[goodkarmaco]

If all the silver was used in industry, nobody would be able to buy any. There is millions of tons of it available to buy, Even on Ebay a person can buy hundreds of pounds of it anyday. Every coin store in the U.S. has a large stock pile of it or can get their hands on it in a moments notice if you want to buy silver.

Since 2002 gold was pegged at about $280.00 and silver below $3.00. Gold has jumped to about $750.00 in those short 6 years! Silver has jumped to $13.52! So the ratio of profit is great for both silver and gold.

When the math is done, gold has gone up in value a little over two and a half times. In that same time frame silver has shot up almost 7.5 times! If I had lots of extra money, I would be buying only silver.

Clearly folks are looking at silver as the darling of the investment in bullion.

We all remember the monetary crash in America of the dollar in 1979 when gold and silver shot up. At that dollar cleansing time silver was again the big performer. Gold went from about $35.00 and ounce to about $800. Silver went for about $2.00 to $50.00.

Big investors seem to buy gold as it is historically bought by them when the economy and the stock market is iffy. Today though may be different as this time around more and more average folks with less money to invest are seeing the advantage of investing in bullion and they feel they can get a bigger bang for their buck with silver, plus the fact they can actually afford it. Then like you say the upward pressure on the white metal thru industrial use is a bigger plus for silver.

Either metal is going to ZOOM in value, as more and more people see things falling apart.

Most investors are into stocks, and are crowd followers. Many though have memories of past monetary downturns and will jump ship in paper stocks when more panic hits the worlds stock markets. They will invest in real money, gold and silver.

Take your pick, each metal will bring great rewards.

 

[pergamon]

If all the silver was used in industry, nobody would be able to buy any. There is millions of tons of it available to buy, Even on Ebay a person can buy hundreds of pounds of it anyday. Every coin store in the U.S. has a large stock pile of it or can get their hands on it in a moments notice if you want to buy silver.

Since 2002 gold was pegged at about $280.00 and silver below $3.00. Gold has jumped to about $750.00 in those short 6 years! Silver has jumped to $13.52! So the ratio of profit is great for both silver and gold.

When the math is done, gold has gone up in value a little over two and a half times. In that same time frame silver has shot up almost 7.5 times! If I had lots of extra money, I would be buying only silver.

Clearly folks are looking at silver as the darling of the investment in bullion.

We all remember the monetary crash in America of the dollar in 1979 when gold and silver shot up. At that dollar cleansing time silver was again the big performer. Gold went from about $35.00 and ounce to about $800. Silver went for about $2.00 to $50.00.

Big investors seem to buy gold as it is historically bought by them when the economy and the stock market is iffy. Today though may be different as this time around more and more average folks with less money to invest are seeing the advantage of investing in bullion and they feel they can get a bigger bang for their buck with silver, plus the fact they can actually afford it. Then like you say the upward pressure on the white metal thru industrial use is a bigger plus for silver.

Either metal is going to ZOOM in value, as more and more people see things falling apart.

Most investors are into stocks, and are crowd followers. Many though have memories of past monetary downturns and will jump ship in paper stocks when more panic hits the worlds stock markets. They will invest in real money, gold and silver.

Take your pick, each metal will bring great rewards.

I think you should check your sources, there are no millions of tonnes of silver available.

The annual worldwide silver production is around 800 million ounces and has been running a shortage for years. So there is more demand then is produced each year. There are no major worldwide stocks of silver left on this planet.

At today's prices the worldwide value of the entire silver market is only about 13 billion US$.

It is not because you buy a couple bars on ebay and coins that there is much available. Coin shops will always sell them because most coins come with premiums. If you had let's say 10 million $$$ to spend in bullion silver I bet it will be very hard to find that amount.

Of course there is big money in silver but it is all in contracts, futures, etc...
The physical market is very small.

Silver will always outperform gold in a bull market because the more the gold price rises the less people can afford gold. That is why silver is 'poor man's gold".

I own some silver, mostly coins. But watch out with silver. There is a saying that goes like "bad, mad and to avoid"

Still I think silver will sky rocket in the years to come. (bullion the place to be, coins, bars (not larger then 30oz)

 

[$1.00]

This is goign to hurt our earnings :td:

 

[SLL]

Since 2002 gold was pegged at about $280.00 and silver below $3.00. Gold has jumped to about $750.00 in those short 6 years! Silver has jumped to $13.52! So the ratio of profit is great for both silver and gold.

When the math is done, gold has gone up in value a little over two and a half times. In that same time frame silver has shot up almost 7.5 times! If I had lots of extra money, I would be buying only silver.

We all remember the monetary crash in America of the dollar in 1979 when gold and silver shot up. At that dollar cleansing time silver was again the big performer. Gold went from about $35.00 and ounce to about $800. Silver went for about $2.00 to $50.00.

Gee, let's all pick a time period that is advantageous to our argument.
Why didn't you give us the calculations for gold and silver over a longer period of time that is more relevant?

From 1979 (over the last 28 years) gold has dropped in value and silver has dropped an amazing 70+%! While at the same time, you could have made a ton of money in stocks over that period with a simple investment in an S&P 500 mutual fund.

In 1979 we heard the same arguments about how everything was going to hell. Only in 1979 we were in a recession with high inflation (stagflation) and interest rates were halfway to the moon. Oh, and the stock market was tanking too.

Hmmm...good luck with the gold and silver...at least I get paid interest for my dollars...and you have to pay a commission over face value for any gold or silver that you purchase (and a discount/commission when you sell).

When in doubt, listen to the salesmen?

My guess is that some of the rise in these metals has to do with the voracious appetite that China currently has for natural resources and nothing to do with the U.S. economy. The rapid growth in the Chinese economy seems to have increased prices across the board for many natural resources.
Will it continue?

 

[Porte]

By the way, when I predict that the rate of a pair will go up, It is based on long term and multi year studies of euro versus US dollar, not because it is going up. :wve:

Ah for Gold, it is heading towards $800/$900 in the next 1-2 years. and we have time to prove it

 

[pergamon]

Gee, let's all pick a time period that is advantageous to our argument.
Why didn't you give us the calculations for gold and silver over a longer period of time that is more relevant?

From 1979 (over the last 28 years) gold has dropped in value and silver has dropped an amazing 70+%! While at the same time, you could have made a ton of money in stocks over that period with a simple investment in an S&P 500 mutual fund.

In 1979 we heard the same arguments about how everything was going to hell. Only in 1979 we were in a recession with high inflation (stagflation) and interest rates were halfway to the moon. Oh, and the stock market was tanking too.

Hmmm...good luck with the gold and silver...at least I get paid interest for my dollars...and you have to pay a commission over face value for any gold or silver that you purchase (and a discount/commission when you sell).

When in doubt, listen to the salesmen?

My guess is that some of the rise in these metals has to do with the voracious appetite that China currently has for natural resources and nothing to do with the U.S. economy. The rapid growth in the Chinese economy seems to have increased prices across the board for many natural resources.
Will it continue?

Did you realy study economics? If so you would know comparing is irrelevant because gold was fixed at 35$/oz until the early '70s then it shot up to 800$/oz. Eat that. So from 1970 to 2007 we went from 35$ to 750$/oz.

We are indeed set for a 1970's deja-vu, you say high inflation? I say so, you claim there is little? The thing is, it's way worse then it was back then. We need to find a new idiot to lend us money. They are getting scarcer by the minute.

Gold doesn't pay dividends? True. Paper money does, but not even close to what real inflation is running at.

You say everybody is talking about gold these days... I bet very few people do and actualy understand this. CNBC hasn't talked about gold in years and if they get a gold expert on they ask him questions like he comes from Mars. Bloomberg talks about gold sometimes, that's the one to watch!

I'm not claiming that you need to convert all your savings into gold and silver. I'd say a healthy 10-20% of your net worth is OK.

We have witnessed an unprecedented money supply since the closing of the gold standard. What you can show me with your S&P over the past 30 years is indeed impressive. Now let me be the contrarian and tell you that the party is over. First the people will cheer because stocks will set new highs, then will come the disgreace because they have been cheated on for the past 30 years.

 

[SLL]

1. But it is a true that the EURO is backed by nothing and so is the Yen and the Pound. The Euro is more trusted then the Dollar at this moment and that is what's fiat money all about: trust

You ask what gold is. Gold is and have been money for at least 5000 years.

Yes I say it is a ponzi scheme but I also say that debt has brought us prosperous times in the past 50 years. When I go my bank for a mortgage of 200,000$ you know very well that this money is printed out of thin air. Because most people still believe that the money banks are lendings comes from what other people are saving. It's called fractional reserve banking.

When I take out a 200,000$ mortgage this is what will happen:

- My bank holds a 200,000$ claim against me (so there is 200,000$ in their system)
- I will have a house and I feel rich and I will spend against my house value (there is 200,000$ in my system)
- The seller of my house who gets the actual 200,000$ will spend it again in the economy

So me taking a mortgage out of 200,000$ has created about 600,000$ in this fiat system.

That is what I mean with Money=debt these days.

I really would like to know where you are coming up with your ideas/opinions.

You have to ask yourself why the Euro would be more "trusted" than the U.S. dollar. Some Euro countries may not be running a deficit that is as high as the U.S. (as a % of GDP), but their growth is less than 2% or non-existant in many cases, which would not allow them to pay down debt of any significance. Inflation numbers in the U.S. are slightly higher than in the EU.
Oil prices are going to have a similar effect on the EU, and it has been shown time and time again by a number of measurements that a U.S. worker is much more productive than an EU worker (this keeps a lid on U.S. inflation). Why get so excited about the euro, other than the fact that it has had a phenomenal run against the U.S. dollar?

Gold is not money, it is a store of wealth. Money is a unit of exchange. I cannot exchange gold for food or gas. I must sell gold for euros or dollars or yen, which can then be exchanged for the goods that I want to purchase.

Your example of the $200,000 mortgage is incredible to me. I shake my head as to how this information is accepted as the truth.

1) A bank/lender will give me a loan for $200,000, but it is shown as a loan receivable on their books and the bank has to wire cash to the seller/escrow company. The bank generally does this because the cost of their funds is less than the interest rate on the loan. Banks and savings & loans went bankrupt in the '80s when they held too many fixed-rate loans and their cost of funds skyrocketed when inflation and rates shot above the rates they were receiving on their loans.
It is true that banks can lend on a portion of their outstanding assets which include mortgages, but the FED realizes this. This is no secret, and it is incorporated into the calculations of money supply by the FED.

2) You will have to give further explanation as to how a homebuyer "feels rich" when they take on a $200,000 mortgage and the requisite mortgage payments, property taxes and insurance? And somehow this "feeling of being rich" injects another $200,000 of money into the U.S. economy. There is no responsible person I know that takes on these payments and then goes out and spends another $200,000 that they do not have. Perhaps this concept is too abstract for me.

3) The seller does of course receive the $200,000 from the bank/lender and turns around and pays down on the loan or line of credit they have with their lender(s). I don't know of any large real estate developers that do not have a number of loans and lenders.

So, one lender sends out $200,000 that the homebuyer never sees, and the $200,000 arrives at the seller, where it is promptly used to pay down the seller's debt with a different lender.

How is $600,000 magically created in "the system"?

Money does not equal debt or potential debt. Credit, or easy credit, has the potential to increase money supply, but are you seeing easy credit right now in the U.S. credit markets?

Plus, money supply may be increasing over the last few years in the U.S. (frankly I do not know), but I am certain the cost of money (interest rates) has been rising at an even faster rate for the past 4 years, until just recently.
The money out there is now much more expensive than it was 3-4 years ago.
This creates an equalizing effect on the credit markets.

The Fed is not stupid. They take their job and function very seriously. They do an excellent job on matters that they can control.
It is the shocks to the system that are difficult to gauge.
Things such as oil embargos, govt. price controls, the Tech Stock crash, 9/11 and sub-prime lenders (FED should be partially responsible for this) who lend to people that otherwise could not qualify for a "conforming" loan.

I have still not received an answer to my question, "Is United Airlines running a Ponzi scheme, if they cannot pay off their debt in 1 year...or 5 years... or 10 years?" Maybe because you already know the answer.
The U.S. government is no different than United Airlines (except their bonds are a much safer bet). Why haven't you brought up the huge deficit built up under Reagan that was eliminated by a strong U.S. economy about 10 years later?

The answer is that there is no Ponzi scheme. This was proven wrong in the late '90's and it is silly to think of it being so now.

Did you realy study economics? If so you would know comparing is irrelevant because gold was fixed at 35$/oz until the early '70s then it shot up to 800$/oz. Eat that. So from 1970 to 2007 we went from 35$ to 750$/oz.

Are you kidding me? Have you ever had an economics class in your life?
Of course I knew gold was fixed at $35.

What does that mean?

It means that the price of gold was fixed at $35 by the government and was not allowed to trade at the market price.
Therefore, while gold's price was fixed, we have no idea what it's true value was, because it was not allowed to trade in a free market.
This is how black markets get created, because the price that is fixed is artificial. Do you think if the government fixed the price of an ounce of gold today at $500, that the value of that ounce would magically drop to $500 tomorrow?

The government tried to impose price controls in the early '70's because of increasing inflation. This was a disaster because the government cannot tell me what a package of bacon is worth. The market determines the value.

You are seeing the same thing today with the Chinese yuan. The Chinese govt. has fixed the yuan value and will not let it trade freely. Everyone knows that if the yuan was allowed to trade freely in the open market its value vs. the U.S. dollar would be much higher. The Chinese govt. likes it right where it is. Perhaps due to the benefits of cheaper export prices to the United States.

$35 was an artificial value placed on gold by the government.
The real market value at that time is anyone's guess, although I am sure someone has tried to analyze this. Gold had a fixed value for a long time before it was allowed to trade freely on the open market.

To say an ounce of gold was worth $35 in the early '70's is ludicrous.

Why do people open their mouths when they don't know what they are talking about?

 

[goodkarmaco]

printing press money

Oil embargos, gov't price controls, tech stock crash, sub prime lenders are situations that are a direct reflection of fiat money.

When this government wanted more money to fund a ilegal war, they had no funds to do so, that caused the fed to flood the banking system with newly created money via the printing presses, or fiat money.

That huge influx of money had to find its way into the economy quickly, thus it was made available to lenders, thus setting the stage for a massive realestate buildup.

It was not the investment that was so good. It was our government making the money supply grow that SPURRED the run up.

Suddenly the housing market took off creating this economy that seemed to never end in wealth buildup.

Come on in the bankers seem to say, we have plenty of low interest money to lend if you want realestate. First the homes in California and other more effluent areas saw the prices go up. As those homeowners cashed in on the housing boom the money and instant new wealth spread to every city as these people sold out and moved to areas to retire with their "extra money", buying homes in areas less populated. This drove up the real estate values in these areas quickly too.

Oh, it felt good for a while if you had a home or recently bought one as real estate seemed to be the perfect investment. Is it realistic that houses went up in value that fast?

Think about it.. my parents and your parents had to live in their houses for a whole lifetime to see their homes double in value. With the massive money printed to cover the debt piled up by the Bush government, it caused inflation by way of higher housing prices. Homes doubled in value in two or three years!

Did we all of a sudden have millions of people move into every city pushing up prices because of new demand?

Hardly. The truth is more money was chasing the homes in inventory. So they shot thru the roof and new homes were being built with this new money that homeowners received. Many saw the increase in home values to refiance.

Is that a true marker for a great economy?

Witness the bloodbath.

The stock market has had many drastic drops, the housing market is in decline. The Ameirica dollar is dropping like a brick and it will drop even further.

Here is the real kicker to scare the pants off most thinking folks. When Geo Bush gets on tv and says not to worry about the stock market slide as he recently did, you better worry big time.

Of course most investors in the stock market are basically lemmings and will follow what others do. Since they do not see the bloodbath coming they trust when our pres. says all will be well.

Only a few will take a different course. The rest will get swallowed in more housing troubles, be it subprime lenders or other real estate markets. Why?

The massive run up of real estate has played its hand out for the time being and will get hit even harder as more and more inflation picks off the markets. Sure certain areas will hold out, homes that are high ticket will hold steady as the wealthy still have money, but the run is over for realestate in general for the time being.

It is not silver and gold that causes interest rates to go up. That cause is related to the money supply, government debt and inflation. All directly related back to a government out of control with its spending. All related to the fact that money can be created out of thin air, without any hard assets to back it. Money that can be made by turning pulp from a tree and spraying zeros on it.

When the shit hits the fan, they will have to do something. That something will be tighten the money supply spigot, and raising interest rates. They will then blame the greedy goldbugs, or the greedy oil companies. Don't buy it, the problem is out of control goverment spending, using debt as a tool to finance its spending habits.

All of the above will be good for metals.

The kicker to this happening is going to be when China, Japan, and India decide the American dollar investments are to risky and they convert their money to bullion. This huge buy up will happen very quickly and if you are not into bullion by then you will have no time to "get in".

That run up in bullion prices will not last long. The price of "hard assets" will go thru the roof. The dollars decline will wipe out trillions of dollars in the stock market. This slide will bring inflation, eating the value of paper money sitting in peoples bank accounts thru inflation. Yes you will still have the same amount of money in the bank during this inflation run up, but it will buy much less. That is the real reason why you want to get into bullion.


One indicator to set this in motion has not happended yet. When it does it will be too late to turn back the economy. That indicator is consumer confidence.

When Americans in general decide they don't want to go out on a limb anymore and they stop buying large ticket items in cash or on credit, then we will see a real slowdown.

Layoffs, factory closures, unemployment, dropping real estate prices and a deep recession will be the outcome.

Those who want to trust in uncle sam can buy up all the bonds, paper fiat money, stocks, cds they want. We will see who makes the best choices in the end I suppose.

The cycle will start again as we will just print more money, creating a brand new cylcle where some aspect of the economy will spur growth as witnessed by the huge amount of money that poured into the defence contractors such as Boeing, etc. with government contracts during this past six years.

To those who like this scenario, I say you may profit from it all, but think of the hardships fiat money creates for those who do not understand how their life savings get eroded away by a government that chooses to spend its future into debt for purposes that are destructive.

 

[Phoebe_]

US convertions really sucks nowadays.. It really affects majority of the biz all over the world damn..

 

[goodkarmaco]

Sliding dollar and domains

Nice thread Bill, many interesting comments.

The craziest times are still ahead. Its not all doom and gloom.

People like Warren Buffet make as much money in downturns as they do when the economy is zooming. The main way to stay ahead is to know what is going on. That way a person can position themselves in the path of profits.

I think in domaining, downturns in the economy can be good for some domains.

It is the game we are in. Many of us have invested in realestate domains, as the keyword was paying very high clicks. Will that stay the same as more news of real estate foreclosures are in the news?

Our job as a person who runs a domain business is to be where the traffic or interest is. Just like investing in gold and silver, the domainer cannot afford to wait until it all happens. He or she needs to "be" in the market, before all hell breaks loose.

 

[pergamon]

I really would like to know where you are coming up with your ideas/opinions.

You have to ask yourself why the Euro would be more "trusted" than the U.S. dollar. Some Euro countries may not be running a deficit that is as high as the U.S. (as a % of GDP), but their growth is less than 2% or non-existant in many cases, which would not allow them to pay down debt of any significance. Inflation numbers in the U.S. are slightly higher than in the EU.
Oil prices are going to have a similar effect on the EU, and it has been shown time and time again by a number of measurements that a U.S. worker is much more productive than an EU worker (this keeps a lid on U.S. inflation). Why get so excited about the euro, other than the fact that it has had a phenomenal run against the U.S. dollar?

Gold is not money, it is a store of wealth. Money is a unit of exchange. I cannot exchange gold for food or gas. I must sell gold for euros or dollars or yen, which can then be exchanged for the goods that I want to purchase.

Your example of the $200,000 mortgage is incredible to me. I shake my head as to how this information is accepted as the truth.

1) A bank/lender will give me a loan for $200,000, but it is shown as a loan receivable on their books and the bank has to wire cash to the seller/escrow company. The bank generally does this because the cost of their funds is less than the interest rate on the loan. Banks and savings & loans went bankrupt in the '80s when they held too many fixed-rate loans and their cost of funds skyrocketed when inflation and rates shot above the rates they were receiving on their loans.
It is true that banks can lend on a portion of their outstanding assets which include mortgages, but the FED realizes this. This is no secret, and it is incorporated into the calculations of money supply by the FED.

2) You will have to give further explanation as to how a homebuyer "feels rich" when they take on a $200,000 mortgage and the requisite mortgage payments, property taxes and insurance? And somehow this "feeling of being rich" injects another $200,000 of money into the U.S. economy. There is no responsible person I know that takes on these payments and then goes out and spends another $200,000 that they do not have. Perhaps this concept is too abstract for me.

3) The seller does of course receive the $200,000 from the bank/lender and turns around and pays down on the loan or line of credit they have with their lender(s). I don't know of any large real estate developers that do not have a number of loans and lenders.

So, one lender sends out $200,000 that the homebuyer never sees, and the $200,000 arrives at the seller, where it is promptly used to pay down the seller's debt with a different lender.

How is $600,000 magically created in "the system"?

Money does not equal debt or potential debt. Credit, or easy credit, has the potential to increase money supply, but are you seeing easy credit right now in the U.S. credit markets?

Plus, money supply may be increasing over the last few years in the U.S. (frankly I do not know), but I am certain the cost of money (interest rates) has been rising at an even faster rate for the past 4 years, until just recently.
The money out there is now much more expensive than it was 3-4 years ago.
This creates an equalizing effect on the credit markets.

The Fed is not stupid. They take their job and function very seriously. They do an excellent job on matters that they can control.
It is the shocks to the system that are difficult to gauge.
Things such as oil embargos, govt. price controls, the Tech Stock crash, 9/11 and sub-prime lenders (FED should be partially responsible for this) who lend to people that otherwise could not qualify for a "conforming" loan.

I have still not received an answer to my question, "Is United Airlines running a Ponzi scheme, if they cannot pay off their debt in 1 year...or 5 years... or 10 years?" Maybe because you already know the answer.
The U.S. government is no different than United Airlines (except their bonds are a much safer bet). Why haven't you brought up the huge deficit built up under Reagan that was eliminated by a strong U.S. economy about 10 years later?

The answer is that there is no Ponzi scheme. This was proven wrong in the late '90's and it is silly to think of it being so now.



Are you kidding me? Have you ever had an economics class in your life?
Of course I knew gold was fixed at $35.

What does that mean?

It means that the price of gold was fixed at $35 by the government and was not allowed to trade at the market price.
Therefore, while gold's price was fixed, we have no idea what it's true value was, because it was not allowed to trade in a free market.
This is how black markets get created, because the price that is fixed is artificial. Do you think if the government fixed the price of an ounce of gold today at $500, that the value of that ounce would magically drop to $500 tomorrow?

The government tried to impose price controls in the early '70's because of increasing inflation. This was a disaster because the government cannot tell me what a package of bacon is worth. The market determines the value.

You are seeing the same thing today with the Chinese yuan. The Chinese govt. has fixed the yuan value and will not let it trade freely. Everyone knows that if the yuan was allowed to trade freely in the open market its value vs. the U.S. dollar would be much higher. The Chinese govt. likes it right where it is. Perhaps due to the benefits of cheaper export prices to the United States.

$35 was an artificial value placed on gold by the government.
The real market value at that time is anyone's guess, although I am sure someone has tried to analyze this. Gold had a fixed value for a long time before it was allowed to trade freely on the open market.

To say an ounce of gold was worth $35 in the early '70's is ludicrous.

Why do people open their mouths when they don't know what they are talking about?

Your assumptions are ridiculous and spoken by a true "new economist". You must be working with some bank or something, your stakes are probably too high to keep this massive paper ship afloat.

First, if you realy think money should be the way it is like today maybe you could write a big nice letter to mr. Bernanke. Why should we all go to work? Let's ask mr. Bernanke that he prints for every american 1 million $$$. Everybody will be happy! House prices will go up, stock prices will go up so everybody will get richer without doing a thing! And those damn Chinese will be more then happy to take our $$$.
Because that is what has been happening. The main export of the US is the US dollar. Central banks around the world hold TRILLIONS of them and once you're stuck with them, you're stuck. I still admire Nixon for closing the gold standard, it was a brilliant idea from the start. However, it will end at some point in the near future, probably in tears
Do you think those Chinese are so happy holding dollars which continu to decrease in value...?

This ridiculous perception is not so far from reality. You must have an incredible faith in mr Bernanke and the entire FED. In fact you must have an enormous faith in the government itself. Something I don't have to be frankly

At this point the Euro is more trusted, simple as that. Growth is not of importance with a money supply of close to 12%. When money is cheap and the government pumps liquidity into the system isn't it normal that there is growth. Frankly I find 3% growth even quite low. I already said that the EURO is not capable of replacing the $$$ as a world reserve currency. That's the luck the $$$ has today, there is no real replacement for it.

To answer your question about United Airlines. I already answered it, yes it is a ponzi scheme. We all are participating in this ponzi scheme! Money is debt, it is a claim against an institution which holds nothing in real value or assets for my $$$.

About gold. The gold price was fixed for many years at 35$ by the government. Doesn't that say enough? In fact it was illegal for many years to own as an individual physical gold. Do you know another commodity that is being so manipulated by the government? Doesn't that ring a bell.

One of the early Rotschilds once said "Give me the power to issue money and I don't care who makes the laws". As often, the truth is in an old saying.

 

[peaches017]

I was in NYC this weekend and there were a noticeable increase in the amount of international tourists, especially from what seemed like European countries. Easily explained by the fact it has become "cheaper" to travel to the USA as the Euro strengthens versus the $USD.

 

[pergamon]

Gold is not money, it is a store of wealth. Money is a unit of exchange. I cannot exchange gold for food or gas. I must sell gold for euros or dollars or yen, which can then be exchanged for the goods that I want to purchase.

EXACTLY! We might get along some day?

Now it's up to you to chose with being paper rich or gold wealthy.

 

[SLL]

Oil embargos, gov't price controls, tech stock crash, sub prime lenders are situations that are a direct reflection of fiat money.

When this government wanted more money to fund a ilegal war, they had no funds to do so, that caused the fed to flood the banking system with newly created money via the printing presses, or fiat money.

That huge influx of money had to find its way into the economy quickly, thus it was made available to lenders, thus setting the stage for a massive realestate buildup.

It was not the investment that was so good. It was our government making the money supply grow that SPURRED the run up.

Suddenly the housing market took off creating this economy that seemed to never end in wealth buildup.

Come on in the bankers seem to say, we have plenty of low interest money to lend if you want realestate. First the homes in California and other more effluent areas saw the prices go up. As those homeowners cashed in on the housing boom the money and instant new wealth spread to every city as these people sold out and moved to areas to retire with their "extra money", buying homes in areas less populated. This drove up the real estate values in these areas quickly too.

Oh, it felt good for a while if you had a home or recently bought one as real estate seemed to be the perfect investment. Is it realistic that houses went up in value that fast?

Think about it.. my parents and your parents had to live in their houses for a whole lifetime to see their homes double in value. With the massive money printed to cover the debt piled up by the Bush government, it caused inflation by way of higher housing prices. Homes doubled in value in two or three years!

Did we all of a sudden have millions of people move into every city pushing up prices because of new demand?

Hardly. The truth is more money was chasing the homes in inventory. So they shot thru the roof and new homes were being built with this new money that homeowners received. Many saw the increase in home values to refiance.

Is that a true marker for a great economy?

Witness the bloodbath.

The stock market has had many drastic drops, the housing market is in decline. The Ameirica dollar is dropping like a brick and it will drop even further.

Here is the real kicker to scare the pants off most thinking folks. When Geo Bush gets on tv and says not to worry about the stock market slide as he recently did, you better worry big time.

Of course most investors in the stock market are basically lemmings and will follow what others do. Since they do not see the bloodbath coming they trust when our pres. says all will be well.

Only a few will take a different course. The rest will get swallowed in more housing troubles, be it subprime lenders or other real estate markets. Why?

The massive run up of real estate has played its hand out for the time being and will get hit even harder as more and more inflation picks off the markets. Sure certain areas will hold out, homes that are high ticket will hold steady as the wealthy still have money, but the run is over for realestate in general for the time being.

It is not silver and gold that causes interest rates to go up. That cause is related to the money supply, government debt and inflation. All directly related back to a government out of control with its spending. All related to the fact that money can be created out of thin air, without any hard assets to back it. Money that can be made by turning pulp from a tree and spraying zeros on it.

When the shit hits the fan, they will have to do something. That something will be tighten the money supply spigot, and raising interest rates. They will then blame the greedy goldbugs, or the greedy oil companies. Don't buy it, the problem is out of control goverment spending, using debt as a tool to finance its spending habits.

All of the above will be good for metals.

The kicker to this happening is going to be when China, Japan, and India decide the American dollar investments are to risky and they convert their money to bullion. This huge buy up will happen very quickly and if you are not into bullion by then you will have no time to "get in".

That run up in bullion prices will not last long. The price of "hard assets" will go thru the roof. The dollars decline will wipe out trillions of dollars in the stock market. This slide will bring inflation, eating the value of paper money sitting in peoples bank accounts thru inflation. Yes you will still have the same amount of money in the bank during this inflation run up, but it will buy much less. That is the real reason why you want to get into bullion.


One indicator to set this in motion has not happended yet. When it does it will be too late to turn back the economy. That indicator is consumer confidence.

When Americans in general decide they don't want to go out on a limb anymore and they stop buying large ticket items in cash or on credit, then we will see a real slowdown.

Layoffs, factory closures, unemployment, dropping real estate prices and a deep recession will be the outcome.

Those who want to trust in uncle sam can buy up all the bonds, paper fiat money, stocks, cds they want. We will see who makes the best choices in the end I suppose.

The cycle will start again as we will just print more money, creating a brand new cylcle where some aspect of the economy will spur growth as witnessed by the huge amount of money that poured into the defence contractors such as Boeing, etc. with government contracts during this past six years.

To those who like this scenario, I say you may profit from it all, but think of the hardships fiat money creates for those who do not understand how their life savings get eroded away by a government that chooses to spend its future into debt for purposes that are destructive.

You guys really have to tell me where these ideas are coming from. This stuff is so entertaining, I just cannot stop commenting.

You state that the War in Iraq directly resulted in the housing "bubble".
Wow, I have heard the War blamed for many things, but that is a new one.
I work in the housing industry. We saw this coming 2 years ago. Lenders offering low initial rates on loans so that people could qualify, but the loans had variable rates that almost surely would adjust upward in a year to reflect a normal mortgage rate. Since people were barely qualifying for these loans, you could assume they would have problems when their rates adjusted upward.
Nobody held a gun to the head of these lenders, and they were taking a big risk if the market turned. The risk did not pay off, and all sub-prime lenders have basically shut down. Most of the buyers were also taking a risk that home prices would continue higher and they would be able to refinance at better rates. Some of the buyers did not understand the risk they were taking. That is all that occured. No conspiracy. Just bad decisions. The lenders will take their losses and some unfortunate homeowners will be foreclosed upon. The lender side is already absorbed and done with. The homeowner side will take a bit longer as people try to hold on.

By the way, my parents bought their home in 1963 for $18,000 and sold the house 2 years ago for $380,000 (a return of over 20x).

Apparently you believe that lemmings only exist in the stock market. They also exist in the currency markets, bond markets, futures markets, real estate markets and metals markets.

Of course silver and gold have nothing to do with the fluctuation in interest rates. Interest rates are affected by money supply, government debt, expected inflation, demand/growth of the economy, risk premiums, velocity of money, credit shocks, worker productivity, value of the dollar, possibly tax rates and other variables. You are touching just the tip of the iceberg.

You then mention that all of our problems are a result of the fact that "money can be created out of thin air, without any hard assets to back it." I will ask again, why is this concept so hard to grasp?
Dollars are made of paper and gold is made of metal. Gold is a mineral.
What makes gold any different than quartz or a dollar any different than paper? It is quite simply their value. I am quite sure you are not burning your dollars in the fireplace. If you don't believe a dollar has value, you can mail all of yours to me.
Let me put it another way. If the dollar were backed by gold, what would that mean? It means that at any time that I want I could go into the bank and exchange my dollars for gold. Wow, wait a minute. I can do that now and I don't even have to go into a bank. What is the hang up with having the dollar backed by gold? It is a waste of time.

You mention that "when the shit hits the fan" we will have to tighten the money supply and raise interest rates, and this will be good for metals.
How in your wildest dreams did you come to that conclusion?
When you tighten the money supply and raise rates this slows economic growth and reduces expected inflation.
Can you explain how that is good for metals?
I would love to hear this.

Then you go on to say that China, India and Japan will rid themselves of all their dollar-denominated investments and buy bullion. No reason given for this bizarre move, but there you have it. Why wouldn't these countries invest the proceeds in their own economies? Why would they buy bullion and let it sit around in a warehouse doing nothing? Apparently their economies also suck and they cannot figure out what else to do with the money.

Then you come up with this beauty: "The dollars decline will wipe out trillions of dollars in the stock market. This slide will bring inflation..." First of all, the dollar has had one of its biggest declines in history and the stock market has risen during that period. So that correlation does not seem to be working for you. Secondly, a decline in the stock market usually is a precursor for a recession. A recession or slowing economy almost always means reduced inflation or possibly deflation. Unless we see stagflation, this in NOT a good scenario for metals.

Then you mention that if consumer confidence drops...watch out...the economy could be moving into a recession.
Did you come up with this all by yourself?
You know the Fed actually watches this also.
Consumer confidence is mainly affected by the job market. If you are worried about your job, your confidence in the economy drops and you slow your spending. This is not rocket science.
But unemployment is near historic lows right now, although I believe it did tick up .1% last month.

Guys you have to tell me where you are coming up with this stuff...really.
I mean very little of these "facts" that you are coming up with are based on any empirical evidence.
Are there books that you are reading or programs that you are watching?
Maybe the out of work real estate agents have moved into selling bullion.
Keep it coming, this stuff is priceless.

 

[goodkarmaco]

how many domainers would like to trade a name for four ounces of gold?

My hand is up.

Gold and silver are constantly being traded for goods. All that is needed is to talk to someone who is trying to get out of paper money and into the metal for a trade to take place. Everyday cars, land, houses, boats, airplanes and just about everything else are being bought with gold or sliver.

It may be difficult to buy a burger with it, but finding a farmer to sell you his cow would be very easy if you had a handful of silver dollars or a nice nugget of gold. Gold banks are in most countries that allow a person to have his money denominated in the metal in a stored bank like building. Purchases for just about anything can be made with this system.

The near future is going to be like no other time.

The flagship country that created the most wealth in the world is causing shock waves. The waves are reaching the shores far off in other countries. Those shock waves will demand the experts in each country to make choices regarding their investments in and their support for the U.S dollar.

The outcome of their decisions will be based on their idea of what money is and how to preserve it as our ship sinks even further. Will they continue to prop up our currency? Will they cut the ropes to our ship and abandon the greatest world power ever?

It will depend on the severity of the dollars fall.

From what I know it will fall further and soon the Canadian dollar will be worth $1.10, the Euro will rise to $1.50. If that comes to be then you and I will witness inflation and hardtimes for the middle class.

This is a worst case scenario for the folks who have looked to realestate and stocks and bonds as this monetary drag will cripple those markets. Don't ignore the enormity of the falling U.S dollar as its effects will be great.

I do think this relates to our buisiness, domaining. I have noticed over my years on this planet with each boom and bust cycle this fiat money creates, that early on in the inflationary cycle money is thrown at anything that is not the American dollar as people somehow sense something is not right and to buy up anything of value is wise as that will hold their value better than the green back. This is a good situation for domains.

End users will want to invest in the future by owning domain names.

That is as good as gold to me regardless if confidence has returned and the greenback is popular again. Hopefully reason and sanity prevail and some sort of gold backed monetary system is in place that is not inflationary insuring proper checks and balances.

Sure it would be nice to own a pile of precious metal, but as enjoyable would be to own some of the best domain names and ride the wave that is coming for domain owners. We are going to see a big shift in advertising dollars and domain purchases as more and more advertisers get what domain names and domain traffic are all about.



For a short course on the predictament the world is in this may be of interest

http://www.kitco.com/ind/Willie/oct042007.html