Monday, August 23, 2010

Peter Schiff da man!

I certainly learned a lot from this man. I think i watch at least 30mins to 1 hour of his videos everyday on average. Unfortunately he did not win the Connecticut 2010 Primary. What a shame for the Americans. From this I can safely conclude that a lot of people over there are still very clueless about economics - specifically AUSTRIAN ECONOMICS. And this is certainly very bad news for the US.

Thursday, August 12, 2010

Fed to buy up US treasuries

There you have it. The Fed came out recently and said that they are not going to shrink their balance sheet and they are buying up US treasuries to help the economy grow. 

Remember a year ago when they said that they have an exit strategy? I thought it was nonsense at that time. They had no way of unwinding their toxic assets. So now one year later, where is that exit strategy?

Now that the Fed has admitted that it will buy up more treasuries, it should be a good signal for investors to sell. Throw the junk government bonds back to the Fed, and use the cash to invest somewhere else. Otherwise, the bond market will collapse in the near future. As more investors realise that the US bond is junk (and I really mean they are junk-grade, not Aaa !!), they will get out of this market, causing prices to fall and interest rates to rise. 

In fact, bond prices should have already fallen long time ago, if not for the fact that investors still perceive the USD as a safe haven, and if not for the fact that the Fed is printing money to buy up their own bonds. When prices fall and interest rates start to rise, the US will really suffer because of their huge debt obligations. Interest-rate wise, right now the govt are just at where the sub-prime home owners were a few years back: they're still on a teaser-rate.The US is completely dependent on low interest rates now.

When interest rates rise, the US has to default, either outrightly or through inflation, the worst being the latter. And judging from the Fed's and politician's historical actions, the latter seems far more likely than the former. Foreign lenders are also increasingly aware of this problem, and they should sell their US debts asap. With foreigners getting rid of their USD by buying up stuff using USD, all the USD will go home to the US to roost. At that time they will face hyperinflation, if they haven't already from the Fed's printing press.

Wealth is purchasing power, and it will not be destroyed when the US collapses. It will simply be transferred to other parts of the world. Sure, there will be some repercussions as exporters dependent on the US consumption will see their businesses take a hit. But there are scores of people well-positioned to benefit from this. China, for one, will see an immense rise in purchasing power through appreciation of their currency relative to other currencies. The chinese will then be able to produce goods and consume their own goods. What is happening now is that the Chinese is lending money and exporting goods to the US so that the US can use the borrowed money to buy the Chinese products. All these just so that the Chinese workers can be paid and have a job. They work so hard but they consume so little. No one works for the sake of having a job. All slaves have a job too. Now the Chinese are exporting goods to the US and the US are exporting inflation to the Chinese. 

In the near future, there will be more and more young westerners in Asia. They have to flee their debt-riden countries. Asia is where the assets are and historically, people always move to places where the assets are. They are not going to stay in their own country and shoulder the burden of the debts.

The US is crumbling from within. Even all its military might will be significantly reduced. Can you have the world's most powerful army when it exists on credit cards? When the world stops lending to the US, the army will be gone as well.

Sayonara US, you are essentially bankrupt.

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