I just got this very interesting E-mail from my dad.
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The problems of the U.S. dollar are becoming ever more intense. See the attached link:
http://www.financialsense.com/fsu/editorials/willie/2009/0820.htmlThis article shows that the Fed is buying more and more of the debt that the Treasury is issuing. In the past, most of our debt was purchased by foreign countries, especially China. China, because it was the debt that they purchased from us that permitted us to buy all the stuff we were getting from them. China among many other of our creditors are becoming more and more concerned about the flood of money the Fed is pouring into the economy and the danger that it must soon lead to inflation. This article explains that foreign governments are buying less and less debt of all kinds from the U.S. This means that we are borrowing most of the money congress is spending from ourselves and that other nations are becoming more and more unwilling to lend us money.
I did read somewhere today that China may be spending more of its reserve of dollars in the U.S. buying up mortgages, presumably to take control of the properties involved at foreclosure in order to attempt to stem some of the loss they will incur as the dollar is devalued against foreign currencies in the international market. The U.S. dollar was pegged at 72 dollars against unit of a basket of currencies two years ago ($DXY), but rallied in 2008, and early 2009 to 89 when the crash cased many speculators and investors to move into what they believed was safety in the dollar. But the bloom seems to be off the rose and the dollar is falling back down to earlier levels. This will change our imports picture by making imports (especially oil) more expensive thus increasing our cost of living. This will not be true inflation, but will still lead to higher prices for nearly everything we buy since fossil fuel is involved in nearly every corner of the economy.
In some financial sectors there is a net inflow of dollars, indicating that debt is being sold back inside the U.S. from overseas. The amount of Federal debt being purchased is declining rapidly as Treasury auctions are not being fully subscribed. There is a bait-n-switch being pulled by the Fed to hide this. They are getting financial institutions to purchase Treasurys at the auction, but then are turning around within a few days and purchasing these instruments from the institutions and placing them on the Fed balance sheet. This gives the appearance of a successful auction but the auctions are getting to be pretty much shams. This ploy is keeping coupon (interest) rates on the treasuries down for the moment, but a time will soon come when the interest rate has to go up to entice buyers. That is when the economy will tank again and the dollar will fall much further, perhaps down into the 60s.
Within 2-3 years, the mortgages that are gonna fail will have failed, the small businesses that are going to go bankrupt will be, and all the crap derivatives hanging out at the banks will be liquidated and the decline of the recession will level out. Because those actions will cause deflation and offset much of the money being pumped into the economy, inflation will still be fairly mild except for energy where we are trapped into getting most of that overseas. For now, energy is the main reason prices will rise. Once that period of time passes, the huge overhang of cash that has been generated will cause the country to switch from deflation to inflation. How bad it will be is a guess since we have the example of Japan where they have tried inflating but just can't get it to work and have had economic stagnation for 20 years. The difference between them and us is that their population has savings and the country had a trade surplus. In the U.S. we have neither. I am leaning to inflation big time myself.
More and more I am seeing speculation that something is in the wind with the dollar and that the action to be taken is getting closer and closer. Knowing the government, the only thing that makes sense is that the government will somehow devalue the dollar independently making the dollars in our bank accounts worth less by reducing their purchasing power. I cannot yet see what this mechanism might be, but there is a feeling of crisis in the air. There is a lot of talk around about a bank holiday associated with this which is why I recommended that people have enough cash on hand for 2-3 weeks if credit and debit card facilities are closed along with the banks. You need to talk to someone whom you trust about moving some of your money into an investment that will not crash if the dollar does. I am worried.
dad
