Below are the major reasons why the U.S. dollar has steadily lost value for decades now and is now teetering on the brink of survival:
(1) The death of the gold standard in 1971 when all controls on monetary expansion were lifted and no sane controls against unlimited monetary expansions were instituted;
(2) Massive foreign U.S. Treasury holdings and foreign ownership of the U.S. stock market currently prop up the U.S. dollar yet foreign interest in purchasing more U.S. securities of any kind is massively declining;
(3) Solutions that have solved past crises such as the 1997 Asian financial crisis involved contracting money supply, significantly raising domestic interest rates, and cleaning up and strengthening the domestic financial sector by allowing financial institutions with poor risk-management policies to fail; and
(4) The U.S. Federal Reserve’s choice to “paper over” problems as their predominant response to this crisis instead of implementing sound fiscal policy. Though this strategy provides temporarily relief to faltering economies and stock markets, such as the Nutrasweet-enhanced 266 point rally in the DJIA yesterday, this tactic only creates more massive bubbles or merely delays bubbles from inevitably deflating. Monetary expansion provides the “illusion” that things are getting better when in fact, they are becoming worse.
The U.S. Federal Reserve is creating a worldwide monetary crisis through the following tactics– massive U.S. dollar monetary expansion, artificially low interest rates, and massive bailouts of financial and housing institutions such as Bear Stearns, Fannie Mae, and Freddie Mac that only further weaken an already fragile financial infrastructure.
Recently a bill to bailout Fannie Mae and Freddie Mac was overwhelming passed by both branches of the U.S. Congress, the House of Representatives and the Senate U.S. Congress. It is expected that President Bush will sign this bill into law almost immediately. Because U.S. Senator Ron Paul deftly explains the impact this bill will have on the already sick global financial world, I’ve merely posted the video link below.
I have outlined some of the important points of U.S. Senator Ron Paul’s speech along with my own commentary here:
(1) The housing bill, the “mother of all bailouts” has removed all U.S. Congressional oversight and handed the power to administer this unlimited line of credit to the U.S. Treasury as requested by former Goldman Sachs CEO and current U.S. Secretary of Treasury CEO Hank Paulson.
(2) Although the media has reported the bailout provision of Fannie Mae and Freddie Mac to be only $25 billion, this is wrong. As Senator Ron Paul has pointed out, the line of credit extended to the U.S. Treasury to buy Fannie Mae and Freddie Mac securities is unlimited. There is no way that $25 billion will be adequate to bailout Fannie Mae and Freddie Mac when both entities only have about $70 billion in capital supporting $1.7 trillion in assets and another additional $3.3 trillion + of guarantees.
(3) The national debt limit was increased in the United States by $800 billion. These translates into almost certain increased further massive debasement of the value of the U.S. dollar. Massive foreign currency exchange intervention and controls will now be necessary to not create further massive downward slides in the dollar as massive monetary expansion directives are most likely on the way. Read more …
There are two rules that every investor should abide by not only in volatile markets, but in any type of market: (1) Keep your losses small and cut your losses early and (2) Let your profitable investments ride. So why is it so difficult for the average investor to abide by these rules? With so much information so easily accessible today, the internet was supposed to level the playing field between the big boys and the small retail investor. It has, but conversely and unfortunately, it has also provided a medium for the big boys to mercilessly manipulate the inexperienced retail investor into making poor investment decisions as well. When you consider the vast ocean of information out there, at first glance, the task of sorting the very few gems of good information from the mountains of rubbish appears to be a daunting, nearly hopeless task.
During the last 12 months, for every person that said that U.S. and Shanghai markets were going to correct heavily, there were ten others that said that these markets were about to start another monumental bull run. For every analyst that said oil was heading to more than $100 a barrel when it was still trading at $60 a barrel, there was another analyst stating that $30 a barrel oil was just around the corner. For every person that said gold was heading to $1,000 an ounce when it was trading at less than $700 an ounce, there were ten that called gold bugs lunatics and said that gold would crash to $300 to $500 an ounce within a year. In addition to these heaps of conflicting reports, Read more …
If you’ve suffered stock losses this year, this will be the most important article you will read. Back on April 23, 2008, I wrote an article called “Will the U.S. Markets Crash Now – Or Later?” and I opened the article with the statement: “Every time I’ve written about the imminent disaster that awaits U.S. stock markets, and subsequently global markets, the response has been overwhelmingly negative.” In that article, I further stated, “People seem to forget one central and critical point. Most people seem to believe that they have to lose a great deal of money when crises materialize and forget that it is absolutely possible to prosper during crises as well. Thus, because they feel they must suffer during a crisis, the “shoot the messenger of bad news” syndrome commences. That said, I’m still going to state my utter lack of faith in this mini-rally that the U.S. markets are currently experiencing. Due to the huge levels of unaddressed and unsolved risk that still simmers quite potently beneath the surface, with the current “solutions” being implemented today, I honestly can only see two outcomes. Crash now or crash later.”
I suggest that you follow this Seeking Alpha link and read this article, and then read all the comments that followed my article (remember that I wrote this article two and ½ months ago). Because I often take a stance so contrary to the mainstream financial media, criticism of my articles doesn’t bother me. In fact, I expect a lot of criticism because I know that the overwhelming majority of people, the people that constitute the investment herd, follow the guidance of the commercial investment industry and consequently will always disagree with me. At about the same time I wrote that article this past April, the financial press inundated newspapers and financial websites with the following headlines: “IMF Chief Says Worst of Financial Crisis is Over”, ” [U.S. Secretary of Treasury] Paulson Says Worst of Financial Crisis is Over”, “Citigroup Chief Says Worst of Credit Crunch Crisis is Over”, “Financial Crisis Mostly Over, [JP Morgan CEO] Dimon Says” and “[James Finucane says] Are You Ready for Dow 20,000?” Read more …
In the 18+ years I’ve been involved in finance, I’ve seen a common thread among investors during bear markets that is extremely detrimental to their financial future. The syndrome I’ve seen afflict many investors is similar to the psychological state that University of Pennsylvania world-renowned psychology professor Dr. Martin Seligman coined “learned helplessness.” This condition is more pronounced in investors that have had their money managed by a large commercial investment firm for many years but often afflicts those that self-direct their investment portfolios as well.
Whenever I’ve spoken to investors that have their portfolios managed by large investment firms after a period such as the past 12 months when many investors world wide have lost 20%, 30% or even 40% of their portfolio value and ask them what they are doing to repair the damage, more often than not, they have replied, “Nothing.” When I have asked them why they would do nothing when they have lost significant portions of their wealth, they always state that their advisors inform them that long-term markets always rise higher, so if they just hold on, they should recoup all their losses over the next several years. In many facets, this response is very similar to the condition of “learned helplessness”. Investors believe that the commercial investment firms are the experts, that they should listen and blindly follow them, and that they don’t have a choice in this matter because they often tell themselves, “I know nothing about investing.” Read more …
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J.S. Kim is the Founder & Managing Director of SmartKnowledgeU™, LLC. He attended the University of Pennsylvania, and received a double master in Business Administration and Public Policy from the University of Texas at Austin. Read more...
Kaeho's Corner
Kaeho is a master martial arts practitioner who has trained in Kyokyushinkai Karate, Mansekan Aikido, Seidokan Aikido, Ba Gua, Chin na, Jui-Jutsu, Aiki-Jutsu, and Gung Fu. Read more...
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