Forum Moderators: buckworks
In the summer of 2004, I took a hard look at what was going on behind the scenes of America's economic picture and started preparing for this day by moving my investments into gold as a hedge.
In a very short explanation I realized that the twin deficits: budget deficit of nearly $8 trillion and trade deficit of approximately half a trillion a year for the last 3 years, would slaughter the US dollar one day.
Consumer debt (read housing bubble, credit cards), state debt and unfinanced social programs (social security, medicare, prescription drug plan) make the situation go from very bad to worst nightmare scenario. This is best illustrated by this quote from "Empire of Debt."
"Americans believe they can get rich by spending someone else’s money. They believe that foreign countries actually want to be invaded and taken over. They believe they can run up debt forever and that their debt-laden houses are as good as money in the bank.""That is what makes the study of contemporary economics so entertaining. We sit at our telescopes and laugh like a divorce lawyer looking at photos of a rich man in flagrante delicto, we know there is money to be made." - Empire of Debt, a New York Times Bestseller
These twin deficits were largely financed by Japan and China who bought dollars and US Treasuries and kept the dollar in a range of $1.14 to $1.37 to the Euro since 2003. Explanation: They propped the dollar up. Without these Asian economies financing our debt, the dollar will collapse.
Well, the bad news is this: Last night, Thursday, the Chinese foreign exchange administrator announced that it would start "diversifying its foreign exchange reserves away from U.S. dollars and government bonds."
Read: with the Chinese buying less dollars, the value of the dollar to other currencies and gold will fall dramatically.
"China's announcement of wanting to diversify their foreign-exchange reserves holdings is going to have a profound effect on financial markets worldwide," said Peter Grandich, editor of the Grandich Letter."It's the death blow to the U.S. dollar, which had enjoyed a temporary reprieve in 2005, and another bullish factor for gold going forward," he said.
This leaves Japan as the major financier of US debt. However, since they hold almost a trillion dollars worth already, they are flush with greenbacks and don't have the stomach for much more.
Without buyers, the dollar will drop. When the dollar drops, the Fed will have to increase interest rates to make it more attractive to investors.
And it gets worse. As US interest rates go up, inflation and recession will smilingly follow behind. The current housing bubble in the United States will crack and pop under the weight of falling dollar and higher interest. If this spawns a recession, as it should, it will affect ecommerce as a whole and internet advertising in particular. The economists I personally follow see a severe recession in 2007.
This is not a doomsday prophecy by crackpots. The USA's entire economic picture hinges on one thing: China buying up US Dollars and government bonds like Pac Man. Without them, the dollar is in a slow death spiral and the US is headed into a major recession that will slow or stunt ecommerce. It's not a complicated chain of events for things to go bad right now. It's really this simple.
As I write this, gold is up $10+ on this news to $539 an ounce, just a few dollars away from a 23 year high. Gold is only an attractive investment as a hedge against the dollar. ie, when Americans and foreigners get scared about the US economy, gold rises.
I feel this issue is extremely relevant to webmasters since most here operate in dollars: Adsense publishers, affiliate programs, Adwords advertisers, YPN, etc., et al.
To illustrate: Foreign Adsense publishers, for example, will actually make a lot less money as they convert depreciating dollars into their own currency.
Approximately this time a year ago, the dollar was about $1.35 to 1 Euro and European webmasters here were very upset by this. It's trading around $1.21 now and will probably get much worse then $1.35 in the next 3-6 months. Be prepared to see threads like we did this time last year "upset" over the low dollar.
Despite bull run market predictions for internet advertising in 2006 and beyond, none of those "experts" took these factors into account. These variables never occured to them.
But let's face it, most webmasters here target the US as their major customer. When that major customer goes into a recession, the bull stops running, stands there, looks around, and says:
"What the hell just happened?"
Gold resumes bull run as dollar falls [marketwatch.com]
China signals reserves switch away from dollar [news.ft.com]
To remind everyone of a standing WebmasterWorld rule: Leave politics out of the discussion.
jsinger ..if you consider your cars to be an asset then we are using a different and incompatible lexicon ..
If a business buys a truck, an economist (or accountant) considers it an investment. Yet when the business owner buys a car to drive to work it is considered a personal expenditure... a silly distinction that skews economic metrics.
Similarly, expenditures for private high schools and colleges aren't generally considered "investments" by economists. They treat sending the kid to Harvard the same as same as blowing money on a junket to Las Vegas.
Medical care? It's a personal expenditure, even when it saves a life.
Point is, it's not easy to know whether Americans are spendthrifts financed by China and heading down the path to financial ruin. The stats are almost useless.
Stefan you forgot the jeep spares .) stock up on the jeep spares :)..presume you know how to make ethanol and bio diesel ..rhum is bad for engines .
Jsinger ..a car without gas ( and if you dont know how to make your own subsitute gas .when the pumps run dry or you can no longer afford to buy gas ..this day will come ) .is just a heap of metal ..somewhere to sleep at best ....
our world veiw isn't the same ..mine has and will stand the test of time ..
years ago my job and others in advertising used to be to make people think like you do ..so we could be rich ..while you worked to keep us there ..maybe we did it too well ..
good luck ..and may your ford or chevy go with you ..
[edited by: Leosghost at 1:32 am (utc) on Jan. 9, 2006]
I seriously read up on biodiesel. I have 10 hectares of land with about 5 good for appropriate crops. I could fuel the jeep with 4 and have one left over for the rum. You have to cover all the bases, eh ;-)
<edit>separated my oils and sugars
We all know how that one turned out - His prediction on that one was so wrong that he had to publicly apologize for his erroneous comments and predictions two years later.
Just some food for thought.
It is a nice arguement. It is the EXACT same arguement that has been made since the US started running deficiets in the 1970's. So, for 25+ years we have heard that same thing said. I am not saying I agree or disagree with it.
I certainly agree that the significant new variable in the last 10 years is China. Their desire to move to other currencey is tempered because they are getting high off the dollar. China wanting to get out of the dollar is like asking a fish what it thinks of water. Walmart alone is responsible for most of the economic gains in China the last 5 years.
Funny how the Fed is holding the line on interest rates and actually sounds like they are toying with lowering them - not raising them.
It is nice to see all the threads about webmasters considering "what's next"...
This wouldn't have anything to do with the service of a gold backed alternative to PayPal would it? No, there wouldn't be a stealth campaign here would there? ;-) lmao What's next - talk of their affiliate program?
and I would like to know how the style codes are manipulated to do the "google serps 3 horizontal lines thingy too..less it's a "boss only button" you're using?
Now THAT'S what I call survival.:) Because of the huge gouging, I mean, *increase* in oil prices, I seriously read up on corn stoves and how much corn I would have to grow to heat my house with it. Too much, it turns out.
Anyone know who owns the fed?
move out of currency and into most anything dense and easily portable and high value ..except diamonds ..there is a glut has been since the 90's.
Diamonds are interesting. There's been a glut of them for 150 years when they began digging up lots of them in Africa. Prior to that, only European royalty bought them.
Cure for the glut: create a cartel and spend a ton of money on advertising to convince every American bride that "Diamonds are Forever." ...One of the greatest marketing stories.
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People forget nowadays how valuable pearls were at one time... about 100 years ago.
Similarly, expenditures for private high schools and colleges aren't generally considered "investments" by economists.
Economists call it human capital. The question is in the value or utility of that capital at any particular moment. An MBA from a top 5 business school might be quite useful.
If everything broke down (which I'm not predicting), those who have invested their time learning how to survive in the wilderness will be much better off.
I'm not trying to ruffle feathers on either end, just using the two extremes as an example. On the MBA side, an economist can convert it to a dollar value based on historical data. With the "everything breaks down" scenario, there's really no recent historical data for anyone to make a data supported opinion or try to make a dollar value. An economist would still call both a form of human capital.
As far as a "gold backed alternative," you better be able to hold it in your hand within a few minutes, or it's blip on the screen just like paper currencies.
Gold is a stable, relatively constant store of value. In biblical times, or in the 14th, 15th, 16th, 17th centuries, in the 1920's, -30's, -50's, -70's or -80's -- whenever -- an ounce of gold could buy you a new suit of clothes plus food and lodging for a week. It will pretty much do the same today; that's what gold is good for.
Despite the ageless, perpetual crapola about getting in on the ground floor of the constant ever-imminent precious metals boom, gold is a store of value and little else. It won't MAKE you a fortune, but it will KEEP a fortune safe.
For short term speculation, even over periods of 2 or 3 years, it's a crapshoot. Its price is driven not by real-world factors such as mining, refining and industrial demand, but rather by panics, hoarding and investor speculation. But long term, it holds steady, that's what gold is good for.
As a long time gold bug and history major, my only comment is that the sky doesn't really ever fall as imminently and rapidly as the freakouts scream it will. These things happen over decades, they move in trends. The Russians didn't invade...instead it was an achingly long Cold War. The decline of the American Empire is gonna happen, but it's gonna take a good 30 or 40 more years, and it will be a slow, gnarled attrition, with seemingly major little crises all along the way.
At best, each of us only has circa 80 years or so on this Earth, so keep that in mind when planning your own long-term and short-term investments. What's your goal: dramatic increases, steady income, preservation of capital? If you've already scored a wad (and possibly have reason to distrust your government as well) gold is a decent stash. Short-term it may go up or down, but if you want real up/down action, the metals ain't where it's at, friend. They're boring. Boring can be a real good thing, it just depends on what you're after.
All I said was I was personally moving money into gold, but the other 98 percent of the OP was about the high probability of a falling dollar and recession.
I don't give a #*$! if people invest in Gold or not. I don't care what everyone else invests in and I was never advocating others should move dollars into Gold. People can invest in Ostrich Farming, the Dutch East India Company, the Pullman Car Company and Typewriters for all I care.
I just wanted to raise the issue that a). The dollar is in serious trouble b). inflation and a real estate/credit bubble is a real possibility c). A recession could have an impact on our business and deserves to be talked about. Booms and busts are cyclical and no economy is bulletproof from them.
Then, all these damn whiners jump in and act like I told them their wife was cheating on them and their son was gay. As if I should keep my mouth shut, don't have the right to talk about such negative possibilities and should go with the program else I might be the sole reason a recession actually happens.
All I said about gold was "I took a hard look at what was going on behind the scenes of America's economic picture and started preparing for this day by moving my investments into gold as a hedge."
That's all I said about it and really wish I never said anything about gold. I'm sorry but I just don't care if other people here at WebmasterWorld invest in it or not.
How this thread got renamed, Brett made false assumptions about my intentions, and the subject got really twisted and miles off track - is beyond my simple and elementary understanding of complex human emotions.
The thread was originally named: "Say good-bye to the dollar." - We are talking about the dollar here and the potential problems in the American economy.
From some of the unrational and off-topic reactions, it's clear that some people want to stick their heads in the sand and pretend this is all just crazy talk.
However, even a publication like The Economist, a magazine not given to alarmist warnings, is coming out with an article called
"Danger Time for America"
Greenspan's actions have created a domino effect through which American consumers could borrow against the rising, potentially artificial value of their homes to buy plush hot tubs and $5,000 barbecue pits. In this way, Americans have been able to literally consume more than they earn..."Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future."
Americans have been able to literally consume more than they earn
If I "save" by buying gold bullion or other hard assets, economists would consider that to be consumption not savings.
If I send my kid to Harvard that would be considered consumption, not an investment
If I buy insurance, that would be considered consumption.
If I buy a truck that would be considered consumption.
Hard to characterize transactions as savings vs consumption, don't you think?
could borrow against the rising, potentially artificial value of their homes to buy plush hot tubs and $5,000 barbecue pits
But, how much has YOUR home appreciated? Did some calculations on what I paid for my house 20 years ago and what I could probably get for it now. This is in a very desirable upper class suburb in the midwest.
Result, annual compounded increase of {insert drum roll}... 4.3%
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Interesting the number of $1+ million homes that are bought for cash. Americans aren't a bunch of drunken sailors... yet.
On the contrary. Seemed to me like you and others were talking about the sky falling.
Well, IME, it's not productive to talk about the sky falling. If the sky is going to fall, nothing you or I do is going to stop it or make it not fall on us. Save a bunch of gold in a coffee can in your yard, and some hooligan can come along and take it. End of your big plan. Doesn't matter how many guns you have or how tough you think you are. Out there is someone with bigger guns who is tougher.
If you are really concerned about the sky falling, then what's worth having is exactly the same thing that is worth having now, while the sky is still pretty firmly attached: SKILL. Skill is something that no one can ever take away from you, never decreases in value, never gets burned down, flooded, looted, inflated, etc. Know how to fix things, grow things, heal things, make things. But skill is so boring in comparison to ingots or guns or cellars full of freeze-dried "meals" (yich!).
I got fed up with this kind of foolishness on the homesteading boards. That's why I don't read them anymore. POINTLESS.
Can we please get back to talking about skills now?
