Credit ratings cut In the last two days, the credit ratings of the Greek, Portuguese and Spanish Governments have been cut by the rating agencies. This has caused the Euro to fall to a one year low against the dollar (the euro peaked, last year, at near $1.50 USD, and has been declining, since). The practical effect of governments having a lower credit rating is that those who are willing lend to them typically will demand more interest to justify the extra risk involved. This can make the cost of borrowing and servicing the existing debt simply unaffordable any longer. This has implications for the U.S., too. The total indebtedness of the U.S. Government now exceeds the combined net worth of every man, woman and child in the U.S. A credit agency doing what they have all threatened to do- cut the credit rating of the U.S. Government- could act as yet another potential "trigger" to a currency collapse. Even at the current, very low rates of interest, the U.S. Government hasn't got enough money to service its existing debt without having to print the money required to do it: any downgrade of its credit rating would be a very serious development, indeed. _____________________ The U.S. Government is broke, and it cannot find lenders willing to lend enough for it to borrow sufficient sums to cover the gap between what it takes in, and what it spends. To make up for this difference, the U.S. Treasury is, and has been, printing money, since fall 2008. An imagined resource has been created within the Treasury Dept where a notation is made, suggesting the Treasury has loaned money to the general budget. Anytime I say there is insufficient money for this or that specific program of the U.S. Government, it is an artifice: I could just as easily have said the U.S. Government didn't have sufficient money to pay for its military operations. It is a general insufficiency we're talking about, an inability to fully deal with its debts and other program needs, except by printing money.
A day of reckoning The U.S. has been fatally weakened, and by that I don't mean it's going to cease to exist as a country, but will join the ranks of other countries in its power, influence, and wealth. I think in the next ten years or so, Americans will be shaking their heads and asking themselves, "What happened," so profound will be the decline in the standard of living caused by the country's former unwillingness to come to grips with its problems. The illusion of prosperity has been propped up by using every available means to hide mountains of debt, everywhere in the system. Unlike that foretold in the Bible, what is to come will be a financial day of reckoning for the country. ____________________ Just today, yet another of cracks appeared: the U.S. Military budget is, according to testimony given by Defense Secretary Robert Gates, being eaten alive by the cost of caring for the returning servicemen- from two theaters of war- who will require care now and, in too many cases, for the rest of their lives.
"Fatally weakened" is mighty pessimistic language. And while I will deny being an ostrich on this topic, I do have confidence that the US economy is adjustable and recoverable, albeit with a good deal of sacrifice and change of habits by the American people. But predicting the financial demise of the nation has the stink of manipulative language about it, designed to achieve certain "short" financial goals and more in line with the market avarice that the US is is struggling to recover from at this very moment. Have you started moving your dollars into yuans yet? Somehow, I don't think so.
Well, Mixz1, I expect Steve will be pleased to hear that his forum now has the power to move international markets! As for the term, "fatally weakened", those who read my post, above, saw exactly what I said and how I used the expression. It could be said the U.K. economy is resilient, as well, but it no longer contends as a world power. As for non dollar denominated investments and foreign currency investments, we've been in those since 2003, as a hedge against dollar weakness; and, if I thought the Chinese Government would cut the Yuan loose from its tight control, I'd buy it in a heartbeat, expecting an immediate pop of 20%. Anyone who wants to see for themselves whether China is a currency manipulator, actively holding its value down, relative to the dollar, as many in Congress say it is, all they'd have to do is look at the track of the Yuan against the dollar in the last year.
V- You have a unique talent for globalizing a localized comment. Maybe I should have clarified my opinion by stating your comments are indicative of the kind of manipulative language used by speculators to influence markets. I don't give you credit for that ability, I only give you credit for mimicking the language. As to non-dollar and foreign currency investments, perhaps you are to be applauded for your self-preservative prudence, but another way to look at it is that you are betting against your own country, which is obviously something you are comfortable doing (with what appears to be enthusiasm, I might add).
What they do now, is peg the value of their currency to that of the USD, allowing changes to occur, if at all, only by stages. (The Yuan is currently about 6.8 Yuan/USD: a five year chart will reveal that, starting mid 2005 and continuing to mid 2008, the Bank of China allowed the value of the Yuan to increase against the dollar very, very slowly, until it reached its current level, where they've held it, ever since). As a result, when the dollar goes up in value against major currencies, such as the Euro, so does the Yuan; and, vise versa. That's why, under current conditions, it wouldn't make sense to buy Yuan, if you were seeking a hedge against dollar weakness. What this policy does, for Chinese exporters, is stabilize the value of their contracts: they know that the value of the export contracts they make will not change merely because of currency fluctuations, so long as they think "dollars and yuan". There is a downside to following this practice: it means that, if the dollar weakens, those things they have to purchase abroad- raw materials mainly, but some manufactured goods, too- will go up in price for them. The same can be said in regard to the U.S., when the dollar weakens, it makes imports to the U.S. more expensive (unless they're coming from China), and can drive up inflation; but, it makes U.S. exports cheaper for others to buy, and can stimulate exports. _____________________ Just as diversification is encouraged in making investments, generally, diversifying your investments across currencies is also a good idea, if you don't want to see the value of your portfolio declining, relative to the rest of the world.
V- I'm not trying to pick a fight here, and as I said, your fiscal prudence is understandable, both emotionally and intellectually, so there's no need to quote yourself to further explain an easily understood explanation. My point was, and still is, that at this point in history, it is the citizens of our "home" country who will exert influences which will have an effect on the recovery or failure of our country's economy. Dire predictions of failure and encouraging the movement of fiscal resources into foreign currencies is sort of non-productive in terms of the goals of recovery and in fact run counter to that goal. While I admit to holding certain non-dollar assets, I have also recently invested in two startups, located in the US, started by US citizens, hiring Americans for work in America. I could lose here, or I could make a modest gain, but for the moment, what I've done is to enable some bright young people to try to build a business and at the same time put food on the table for a couple of hundred people. They will in turn pay taxes, contribute to the Social Security System and spend disposable income in their neighborhoods, thereby helping those around them. They'll buy groceries, magazines, entertainment and housing, aiding in that common goal of recovery. Sure, some of that money will find itself headed overseas. So be it. At the same time, I have not put assets into the hands of non-Americans, some of whom probably don't have my best interests at heart. So yes, in the short haul, you may think this was non-prudent investing. Depends on how you look at it. I see it as investing in America, and if I've shorted myself, I'll think of it as a sacrifice I was willing to make to help the country that's been so good to me.
International diversification Well done, Mixz1; and, for many of those who, like yourself, have chosen to invest in property, here, in Mexico, that itself represents a form of international diversification of investment. Though it probably doesn't represent more than a minor motivation for buying here, it is one of the things we take into account, when considering it. ____________________ In spite of everything, the bulk of our investment is physically in America, and in dollars; so, for us, foreign currency denominated investment represents only a partial hedge. Like other Americans, even though we live abroad, we're obliged to pay U.S. taxes, on our world-wide income. Aside from investment in America, and paying taxes, there are other ways we contribute, too. Two of my three children served in the U.S. military, and the third is a research engineer at the U.S. Naval Weapons Laboratory, China Lake. We've got a serious stake in America: any comment I make about the U.S. being in danger of a further, financial meltdown, is just a statement of personal opinion, based on observation, and not a wish. ____________________
Unless you have unlimited time and tolerance, give up, Mxz1! V has a desperate need to have the last word. Anyone who can paint the Cancun jail to be NOT from the TV series OZ but more like Oz as in the Wizard of, lives in a world unto himself where logic, mathematics, money markets and other people's opinions play 10th fiddle to his own rose-colored or jaundiced world views. Jaundiced in the case of the U.S. and rose-colored in the case of the Cancun jail or the waiting line in Immigration. "Minds are like parachutes. They only work when they are open." Baron Dewar (yes, as in the scotch)
Personal attacks I have you to thank, Jim, for teaching me to ignore personal attacks on this forum, by making me a frequent target of yours. _____________________ I probably had a different take on what Mixz1 was saying, thinking he was pointing out the risk of creating a self-fulfilling prophecy; and, that there were good reasons for those who cared about what happened in the U.S. to continue to put their money into it, even at some personal financial risk. My post was conceived (by me) to be, in response to his, concurring. _____________________
