Sunday, June 3, 2012

The Day the Dollar is Rejected by BRIC Nations

BRIC Nations
Newbill touches on the theme of a group but not necessarily aligned nations of Brazil, Russia, India and China could have power to collapse the American economy by messing the U.S. Dollar.

JRH 6/3/12

The Day the Dollar is Rejected by BRIC Nations

By Tony Newbill
Sent: 5/24/2012 12:09 PM

June 30, 2012, could that be the day the Dollar is rejected by BRIC Nations?

This is How the US Government and the Federal Reserve are Containing Inflation, but it will unleash Hyper Inflation event that will over night collapse the Free Markets Once the Federal Reserve action is rejected as well as private dollar denominated capital by Foreign Suppliers of the BRIC Nations!!! The Free Market private capital Investors are gone from this Process and this means we are close to defection between Nations. The Trigger point is a lack of supply after June 30 at Levels that we can equate Current GDP to. Once the markets digest this information and Flash Trading takes hold a crash will be imminent after June 30 or before even if the Federal Reserve Announces another program. But the BRIC nations will reject the dollar denomination.

"… the average American enjoys the lifestyle they live and the benefits of a fiat currency that is reasonably controlled."

"My argument rests on one very simple point. That the negatives are a small price to pay for the positives."

"the fear of hyperinflation is completely unfounded. It requires a loss of faith in the currency."

I think the fatal flaw in the 3 statements in the above argument is an assumption in support of quote #3 above. Namely, that the Fed can continue propping up the house of cards, even as they necessarily continue to build it ever higher and more complex in order to do so.

People made similar arguments in favor of the stock market and housing prices back in 2007. Ben Bernanke did this also on the national TV programs. People didn't lose faith in the stock market, the housing market or GM until it came crashing down around them and then people lost faith very very quickly. The exits weren't nearly big enough to accommodate everyone who lost faith at that time.

A family living far beyond its means often doesn't lose faith in buying things on credit until their creditors cut it off. That's when the panic hits. Before then they may realize their finances are out of balance. They may even take some steps to try and bring it a little closer to balance. But they all too often don't take the necessary steps to bring it into balance until they hit that brick wall when they're suddenly forced to do so against their will. That's when their "faith in the [currency]" collapses.

Some of people in countries that have experienced hyperinflation episodes: 

People may have done the math and seen the warning signs long before the catastrophe struck, but the majority went merrily along their way until inflation started getting uncomfortably high, then painfully high, and then became catastrophic. "Having faith" couldn't have prevented the catastrophe. Lack of faith didn't destroy the currency; the inflation is what destroyed the faith.

The U.S. can't keep up the status quo with an inflation rate similar to what we've had up until now, even if other countries continued to throw their savings down the treasury rat hole, which they aren't.

Not only is our official debt to GDP already 100% and rising rapidly (far above the 90% threshold history teaches is a tipping point for much pain), but our increase in liabilities (funded and unfunded) was in excess of 53% of GDP last year and also 346% of total revenues:   

And that's at near zero interest rates. If the BRIC nations, among others, are already taking the preliminary steps towards moving away from the U.S. as a reserve currency, and have been screaming loudly and publicly about the Fed's money printing already, don't you think that's already evidence of some loss of faith in the currency?

The problem is that once it gets out of hand, the central bank can't keep things relatively under control, any more than Bernie Madoff could have kept his Ponzi scheme going as long as everybody "kept the faith".

Look at this graph of the U.S. debt:    

It doesn't include the "off the books" & "unfunded liabilities" that dwarf the official debt. Social Security & Medicare taxes have been counted as revenues in the pay as you go U.S. version of Madoff's Ponzi scheme. The first of the baby boomers hit age 65 at the tail end of last year. I believe it's something like 9,000 people are retiring every day. A Zerohedge article a couple of days ago said we're already at the point that we only have one full time worker for every retired person.

Those deficits are going to skyrocket.

As Chris Martenson so ably shows, Compounding is the Problem: 

The purpose of this mini-presentation is to help you understand the power of compounding. If something, such as a population, oil demand, a money supply, or anything, steadily increases in size in some proportion to its current size, and you graph it over time, the graph will look like a hockey stick.

Said more simply, if something is increasing over time on a percentage basis, it is growing exponentially.

Using an example drawn from a magnificent paper by Dr. Albert Bartlett, let me illustrate the power of compounding for you.

Suppose I had a magic eye dropper and I placed a single drop of water in the middle of your left hand. The magic part is that this drop of water is going to double in size every minute.

At first nothing seems to be happening, but by the end of a minute, that tiny drop is now the size of two tiny drops.

After another minute, you now have a little pool of water that is slightly smaller in diameter than a dime sitting in your hand.

After six minutes, you have a blob of water that would fill a thimble.

Now suppose we take our magic eye dropper to Fenway Park, and, right at 12:00 p.m. in the afternoon, we place a magic drop way down there on the pitcher’s mound.
To make this really interesting, suppose that the park is watertight and … READ THE REST

It becomes mathematically impossible to continue on this path, and "faith" can't make up the difference. Reality will crush an unfounded faith in a government that betrayed that faith, and upon a fiat currency backed only by a faith and trust in that government.

At this point, massive tax increases all the way to 100% of all tax payers earning above $250,000 wouldn't even come close to balancing the budget as Tony Robbins shows in this short video  

Doing so and then confiscating all of the assets of millionaires and taxing the top 500 corporations at 100% would barely balance the budget for one year (if they stood for it, of course), but that couldn't be repeated the next year, obviously. You can only take all of their assets once. You killed the golden goose.

Bottom line, our only options are a massive austerity program, which just will not happen until absolutely forced upon us one way or another, de facto default through inflation/hyper-inflation, or outright default.

Most governments go the inflation/hyperinflation route by default. It seems to be the least painful way to kick the can down the road a bit further and it's less obvious to many people who are at fault. The results are delayed at least somewhat and the people scatter the blame among multiple targets...  It is big business' fault, or "the speculators", or "bond vigilantes", or "gold and silver hoarders" etc.

Don't get too cocky when in the eye of the hurricane. It may well be that "You haven't seen nothin' yet."

Edited by John R. Houk

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