Economics Lessons #2: What to Expect as the US Dollar System Fades

Posted by FeelingAwake
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on Thursday, 21 June 2012 in Sign Posts


This is a continuation of my economic education series that will focus not on the END of the US Dollar system, but its fading out. We are witnessing the middle part of the process even as I write this article. The collapse of Europe, the ascension of China as a power player in the economic world and the re-establishment of Russia, are all signs of a fading US Dollar system.



Please read my first economic lesson if you are unfamiliar with the concepts of Bretton Woods, Petro-Dollar recycling, US dollar as world reserve currency or how and why the US Dollar is so important to the world economy. This piece will build upon that lesson and take you to some logical conclusions as to where things are going and what you can do to prepare.

We will start with the word I chose in the name of this article. The word is FADE not FAIL, I use this word on purpose because the ending of the US Dollar system is not a singular event, but rather a string of events that will lead eventually to the end of the US Dollar system on the global markets. As I stated in my last two articles, there are stories that show how on the periphery of the US empire, there are moves underway to supplant the US Dollar as a means of trading oil. The most noteworthy are China/Japan and China/Russia. This is the fade part of the event. No one wants to be the first to jump out on a limb and forgo the US Centric monetary system. Either they do not want to risk an implosion of their internal markets (in the case of large countries like China and Russia and Japan) or they do not want to risk raising the military ire of the United States (as in Iran/Venezuela/Nigeria).

The early phases of this fade have been in play for a long time. The slow off-shoring of US Jobs to keep up the illusion of prosperity at home is a symptom of fade. The importation of cheap consumer goods from near slave wage countries such as China has allowed the US to maintain an illusion of wealth, even as we go further into debt. As I stated in previous articles, we can maintain a high level of debt, because all the real things on this planet are denominated in US Dollars. So when we buy all this consumer crap from China, what are they going to do with all those US Dollars?

Well first they are going to try and spend it to their advantage. They will purchase profitable ventures in the United States in an attempt to further weaken us. But then China finds that they cannot invest in banks, they cannot invest in sensitive areas such as military equipment production or energy or even some chemicals. Of course these are the real money makers, so China is left with the option of buying US Treasuries, or put another way; they are funding the US Government’s overspending every single year, along with Saudi Arabia and all the other OPEC nations. China has been content to play this game for over a decade now, but they are showing they are not oblivious to our game. They have started to unload more of their US Dollar holdings in other countries such as Canada and their Tar sands projects. They are invested heavily into Africa and now even South America. But at the same time they continue to buy US Debt, though at lower and lower levels each quarter. It is not in their best interest to sink us overnight, though they do have the ability to do so, should they want to pull the trigger.

Another area where China is getting active is Real Estate. They are buying up a lot of real estate in the US and in other western countries. This is a tactic that the Japanese used to use in the 1980’s, only they got burned badly. The Japanese bought in at the top of a real estate bubble(nothing compared to the top of the 2007 bubble), and those of us old enough to remember, relished in the scenes of Japanese business men having to sell Rockefeller center back to US investors at a gigantic loss. The Chinese though are not that ignorant, they are buying into areas of the United States that have seen 75% drops in price from the peak.

This is the first real effect that this US Dollar system fade could have upon your life. Are you renting right now? Who owns your complex or house? Will they sell if some Chinese investors come in and offer 5% over current market value? This can affect you in many ways. If you were looking to buy up property in a particularly hard hit place and were renting while you saved the money, you might find yourself shut out of the market by deep pockets from China or Saudi Arabia. You could find your rent being jacked up by investors who only purchased the property to funnel money back to Chinese ETF’s. This could be exacerbated by 401k money in the US chasing returns anywhere they can find it, even if it is a Chinese hedge fund that is buying up US property and throwing people out on their ears because they can’t afford the rent. This could also be used to your advantage if you do your homework. It could mean a turn around in the hardest hit places for Real Estate. Do you have the money and the balls to jump in on the ground floor? Do your own homework obviously, but you might be able to jump on some cheap property and flip it to Chinese business men over the coming year(s).

The bigger macro to understand here is that the US is going to be piece meal sold off in fire sale after fire sale or at least that is what they will attempt to do. It is happening in Indiana where they sold the turnpike to foreign investors. In this case it was an Australian consortium and not Chinese, but this doesn’t mean in the future we won’t get more desperate and start selling our infrastructure to Chinese funds as well.

The big pictures is that as the world slowly stops accepting ONLY the US Dollar in exchange for their real goods and services, they will more and more demand access to the real assets of the United States with more foreign ownership of steel mills and lumber mills, and more access to the raw materials that are fed into these mills. We could see a further erosion of EPA regulations regarding workplace safety and environmental protections. I feel strongly that the moves to break the back of unions are in preparation for just such actions. I am not a huge fan of Unions, but I am a fan of the basic safety and humanity that they (and others) have obtained for the workers of this country. If left unchecked we could see a return of the company store and a return to workers having no say whatsoever, a return to punching the clock and looking down as the boss man passes by.

This is obvious a longer term view of what could (and will) happen if these forces are left unchecked. I know it is hard to fathom right now, but imagine there is an economic implosion that leaves 25% of the people completely unemployed. And not like it is now, where you get Unemployment Benefits for 99 weeks, or you can work part time. I am talking Great Depression style unemployment that grinds for months and years. Would you accept a job at a Chinese run steel mill or go and work for an Australian owned lumber yard? Most people would chomp at the bit and take any and all concessions to do so.

But what does the world look like as we transition from here to there? And is it inevitable that we go this direction at all? I will address the last question first. History says that it is likely inevitable. Why? Because people will never take the time to understand the forces that are at work behind the scenes and they will not do the things necessary to protect themselves and prevent such a future from happening. I know it is not what you wanted to hear, but look around you folks? Who is fighting the good fight right now? The only people I see standing up and really fighting are the ones in Tahir Square or outside the Parthenon in Greece or in Reykjavik Iceland. Where is the good fight in the United States? I just don’t see it happening in time.

Which leads me to answer the first question; what does the world look like as we transition to a new economic world? I will forgo the nuclear Armageddon scenarios, but one should not totally discount the effect of war upon your plans. I feel that a land war in America is not likely during this phase, but it most certainly is possible in the outlying areas of America’s empire. The Arab spring is but an opening scene in a long violent pulling away from the American system.

I know we have readers from a lot of other countries besides the United States and the Eurozone. I apologize for this next segment as it will be heavily geared towards those countries. I grew up in the center of the United States and have been middle class my whole life. I have traveled a little bit outside the States, but mainly to areas that are heavily under the influence of the US, such as Mexico and Ireland to name a few. I have never been to a 3rd world country for real, and I will not insult you by trying to understand the trials and hardships you face. I will tell you that it will get worse. Likely much worse and I would consider where you might flee to should things get so bad that you are forced to leave. You might consider fleeing before it becomes too obvious.

I had a conversation with my Brother in Law who was born in Iraq but moved to Kuwait just before the Iran/Iraq war in the 1980’s. His family saw what was coming and left before the masses tried to do the same. He has lived in the US for 25 years or longer now, and he and his wife (my wife’s sister) are planning to move back to Jordan (where his family now lives). I asked him if he was afraid, being located in a country that is so connected to the US, and is he fearful of an Egyptian style revolt that would bring down the countries rulers? He said that is why he is keeping his home in Tennessee. It gives him the option to go either way. Most don’t have that luxury, but they do have the ability to beat the crowds and to consider relocating to countries that have already felt the pain of breaking away from the US. I know it is a radical thought, but wouldn’t it be better to be in a country that has already gone through the strife and violence of breaking free? Again, it is not something I can comment upon, because I have led such a sheltered and privileged life. I feel that it would be insulting for me to go any further with this line of thinking, so I will concentrate on things I do know about.

In the US this fade away from the US Centric monetary system, will affect you greatly depending upon where you are now and what you are willing to do in the months and years ahead. For those that have spent the past 10 years moving out to the country and learning a new way of life, this transition may seem almost imperceptible. But for those that were blind the past 10 years, the changes have (and will continue to be) monumental. I can all but guarantee that many of you have lost good jobs in the past 2 or 3 years. If you were prepared it wasn’t necessarily a life ending event. Go back and read my introduction to understand what I have gone through the last 3 or 4 years and the mistakes I made.

But it will get worse. Imagine losing your job and then not having UE benefits? How about a foreclosure process that actually works? Right now there is so much overhanging foreclosure property on the markets that they are not even bothering kicking people out. What happens when the Chinese come in and start buying up that property? How fast do you think the banks will be kicking your ass to the curb as they get it ready for sale to some foreign real estate fund?

So first and foremost you have to stay employed and to start getting radically simple in your life. I have been working towards this end for many years and I will continue to accelerate those plans. Make sure you do not take on any debt unless you are absolutely sure you can continue to service it. I would strongly urge you to just pay off the debt load you have and do not add on at all. Do not buy into the doomers who believe that your debt is just going to go away. It isn’t, it will just be bundled and sold to foreign investors. There will be harsher and harsher punishments for those that try and skip out on their debts. If you must, consider bankruptcy now while it is still a viable option. Walk away from a home that will be an anchor to you and your new life. DO IT NOW if you feel it is going to happen anyways. If you wait, the door is going to be barred and you will be stuck.

Learn to cook from scratch and start gathering the basics you need to do just that. The basics last much longer and are a lot cheaper than buying up cheap canned goods and is certainly cheaper than disaster foods. Buy the stuff you need to can stuff and to cook in bulk and store the leftovers. Re-learn how your grandparents (or likely great grandparents for many of you) lived. Learn how they stretched everything and never bought new if they could help it.

Believe it or not this is the only strategy that will work in driving off foreign parasites. But it is a strategy that people in mass will not embrace until it likely too late to make a difference. The best strategy to fight the evil that is encompassing out country is to do as little as possible. By simplifying your life you find you can get by on so much less than you ever thought possible. Because I am low on money right now, and I am trying to coax as much use out of my car as possible, I have been pushing starting my car because the starter is shot. Plus the power window doesn’t work and the interior is a shambles. But it is paid for and I really don’t want to have more debt hanging on me. I am going to learn how to replace the starter myself and fix all the problems, instead of even getting a new used car.

Same goes for my washing machine. It is over 10 years old and it stopped spinning. My first thought was to buy a new one. I caught myself and we have been going to the local Laundromat while I figure out what’s wrong with it; probably something as simple as a new belt or a stuck bearing.

The larger point here is to get ahead of the wave while it is still a choice. Being forced to make these big changes in life can be so much harder. I truly wish that things weren’t going to go this route. I wish there were an easier way, but it isn’t going to happen. One way or another the United States is going to be reduced. My sincere hope is that enough people wake up while it is still choice and voluntarily and dramatically reduce their lifestyle. This will have the effect of pushing us over the financial cliff much sooner than the Powers That Be want it to happen. My FEAR is that they will string this along to a point where they stay in complete control of everything and can dictate the changes that will happen, while they stay at the top of the heap.

Be a beacon to others and share what you are doing. You will be surprised at how receptive people are getting to radical ideas. My brother is currently putting together an aquaponics system that he hopes to share (and maybe even make a few bucks on). It is a great system that requires very little outside inputs once it is started. But it takes time to learn these things and to get them setup. You must start on them now, while the sun is still shining. Do not put off till tomorrow the things you know you should be doing today. That is my ultimate advice. Learn to simplify your life and don’t stop. I simplified my life about 4 ½ years ago. I got lazy and stopped simplifying. I am now having to speed up my preparations because I got lazy and the speed of the collapse was a lot slower than I had anticipated. But the changes are coming, sometimes they are fast like in 2008 and 2009, other times they are slow like the past 36 months. But the changes keep coming and the only thing you can do is keep ahead of the wave and to inform as many people as you can. Do not waste time on those that do not want to listen. You will know them easily. Concentrate on those that ask the right questions and help them see what is coming. The more people that are thinking right as things fall apart, the better for us all.



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