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Shadow Stats John Williams on the End of the Dollar
John Williams of shadowstats.com gave an interview a few weeks ago where he discussed the pending collapse of the U.S. Dollar as the world's reserve currency, as well as the role gold will play going forward.
He points out that the Government uses a cash based accounting method, instead of the GAAP required accrual based method. This allows the Treasury to leave out trillions in unfunded liabilities when reporting yearly deficits. Something many of us at ZH have been harping on for quite a long time.
Ultimately he believes, as ZH has pointed out, paper currency will be devalued to the point where nations turn to the barter system. Eventually returning to some type of currency that is backed by gold.
Notable Points:
- We have no backup system to the Dollar, and when it gets dumped it will be very disruptive to our system
- The Government conveniently ignores GAAP and uses the cash based accounting method, allowing them to not talk about trillions in unfunded liabilities
- Eventually the current system will lead to civil unrest, and we'll devolve into using the barter system for trade
- People are trying to figure out how to protect the purchasing power of their assets, which means hedging with gold
- Ultimately all of this will lead to a system of exchange once again backed by gold
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In a true collapse, you'll never be able to defend a substantial holding of PMs (quit lying to yourselves and us, ITGs). If it's not a total collapse, no government ois going to go back to the gold standard as it once was (name on in the last 40 years. Go ahead, take your time). They'll just replace it with another fiat system. What, you think millions of broke and starving folks are going to take even more pain in the name of the principle of a gold-backed monetary system? Because it's the "right" way? Why do you think it's lasted this long with nothing but the fringe attacking the idea?
Because the fat and stupid are just keen to stay fat and stupid as long as somebody else does the hard hauling, or at least hides the bad stuff from their sight. Y'all are more delusional than a suicide bomber if you think the average shit-for-brains suddenly becomes an enlightened philosopher-king schooled in sound economics and social policy in the middle of the utter devastation of everything they've ever known as "normal."
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Us at Zero Hedge? Who is Crown Thomas and where di he come from?
I think he/she came from the foreign and mysterious land of twitter.
Here's the problem w/ the 'dollar is doomed' argument:
60-70% of GREEKS like the euro and want to stick with it regardless of hardships! Poll after poll, austerity package after austerity package!
60-70% for the EURO???
A large percentage of fund managers are exiting the euro and buying US stocks ... 60-70% say, 'Not with my euros!'
It doesn't matter what John Williams wants or sez, the vast majority of US citizens like the dollar, certainly more than there are Greeks who like the euro.
Our fuel suppliers like dollars, too. What else would they take in place of dollars? Iranian rials? How about that inflating Saudi currency? There is something to those dollars: the Chinese use them to buy their own fuel (the yuan don't trade on F/X markets).
I'll take John Williams seriously when he gets rid of the land yacht(s) and starts walking/taking the bus. He won't do that, he won't hand over the gold in order to fill the tank. Exxon won't take the gold for one thing.
JW is too plugged into business-as-usual, life in suburbia, feet on the table, reliably supporting Newt. He consequently has zero cred.
Instrument of tyranny/car goes first then we talk ... okay?
Iran is already making deals with other countries (read India, China- possibly even Russia) to sell their oil for gold. China and Japan have agreed to trade with each other in their own currencies.... Same with China and Russia. All the BRIC countries are also negotiating trade deals with each other in non-US currencies....Do you see a trend here? The danger the US faces with this should be pretty obvious to most who understand even a bit about economics-monetary theory, demand, supply etc; etc. ie: There will be a day, sooner than you think, when the USD will not be wanted by anyone. What do you think will happen once this occurs? Especially since most products Americans want are manufactured outside the US?
I'll give you a bit of free advice here.....BUY GOLD. SILVER and do it now!
The dollar can't collapse because JW drives a car instead of taking the bus? Your logic is infallible.
Here is the problem with your "problem".
Fiat money has credibility only because of two intrinsically tied reasons; the government that backs that currency requires taxes they impose be paid in the currency, and that government has enough guns to demand it - the strength of laws are always based death and the gun.
Doubt it, go try and pay Uncle Sam with anything other than a US$ and see what happens.
Reserve currencies only have as much credibility as the guns of the country that back the currency. Remember the Cold War? What happened to a person living behind the Iron Curtain who tried to pay their taxes with US$?
...
Keynesian economics is an accounting game, that is run in a very similar fashion to Vegas. It runs very well, if a few simple rules are followed. Just as casinos must not make "the take" too high or low, in the Keynesian game one must not get to far afield from the demographic growth rate. If one does, the game hits the now popular "Keynesian wall".
This is what happened over the past 40 years. The powers that be convinced people to believe in promises demographics could not deliver upon. Dismal scientists call such things "unfunded liabilities".
Those in power were like parents who spoil their children. Such has happened often through out history. The roman powers in the end had to resort to games and bread to placate their creation.
It was also so before Rome. In fact this aspect of human nature was written about in the West's philosophical seed, the bible; "For many shall come in my name, saying, I am he; and they shall deceive many." {i.e. make promises only God can make; i.e. the great error of Socialism, Communism, and the Catholic Church's "Social Justice" philosophy - as a Roman Catholic I find the latter the most infuriating, but I digress.} The outcome is also written of; "And the brother shall betray his brother unto death, and the father his son; and children shall rise up against the parents, and shall work their death."
Today's politicians didnt realize the monsters they created were growing up so fast. They thought they would, like their predecessors, be able to kick the can down the road and escape the anger all lies bring.
Everything else is but detail that makes for print fit for the egos of men.
No one knows the time or place, but every wise man knows it will come.
Those who dont think it is coming are either ignorant or a fool.
"What else would they take in place of dollars?"
Maybe I'm different, but I'd gladly agree to be paid in gold or silver
We were in Russia when the ruble collapsed (1200-1 US dollar). Their solution? Accept four currencies - US dollar, Ger Mark, UK pound & French Franc. It actually worked well for purchasing but then there were few payrolls, loans, businesses and zero credit. RP has said that there is an automatic urge to find a replacement currency and the strongest one will win. Some don't want to hear that but it makes sense.
Actually, Williams points out that the U.S. government is required to carry two sets of books: the cash-based system which is routinely cited in the press for all popular econometric figures (deficits, spending, etc.) as well as a GAAP-based system whose results are published each year near year-end. Thus, the cash-based system says that our current cash budget deficit is running around $1.5T, but the GAAP-based system, which must account for the present value of future Medicare and Social Security obligations (as if we had to write a check for this year's worth, to be invested to fund future expenses) is something horrendous, like $5T.
I think this is where the hyper-inflation argument comes in. Since these obligations are statuary, in other words, legal obligagtions of the U.S. government (and Social Security payments indexed to the wage base) the tsunami of spending will simply overwhelm the taxing power of the economy. The government will print, and print, and print. Hyperinflation is not necessarily bound to domestic wage-and-price cost-push, but rather to the credibility of the U.S. dollar as the international reserve currency. Williams's contention is that as central banks (and other dollar asset holders) figure out what the U.S. government and Fed are up to, they will start to dump the dollar, which will beget an unstoppable dollar slide that will push inflation in the U.S. through the roof, through currency depreciation.
Time will tell.
Can I have 10,000 marbles please?
Think you've backed the wrong horse. Your major premise is that the world will go to a silver or bi-metallic monetary standard. Your major premise is that the world will go to a gold-only standard. When that happens gold will go to the moonand so will the gold/silver ratio. But silver will be valued as any typical non-PM commodity. It will trade solely on its industrial supply-demand fundamentals.
John Williams is arguably the scariest doom sayer out there. He is simply a numbers guy and numbers dont lie. So 2014-2015 it is then. 2 years left to prepare for the 15th century.
He is simply a numbers guy and numbers dont lie. So 2014-2015 it is then. 2 years left to prepare for the 15th century.
************
True-numbers don't lie but if you use the wrong numbers you can build a lie-which is exactly what the clueless JW does-
He has it completely assbackwards-
More like Weimar Germany or Zimbabwe. Life will be a bitch for old people and those with no tangible skills to offer
Historically the gold/silver ratio value has been 1/15, which roughly corresponds to ratio of metals contained in the crust. The major monetary metal throughout history has been silver. Look at pound sterling for example or pieces of eight in these parts. Also China's main currency was silver.
We tend to revert to the mean. Since the world went off the silver standard massive amounts of silver have disappeared from central banks, I don't have exact figures, but it's in the 90% area; after which it would follow then that at least for a while, as silver becomes very scarce the gold silver ratio could fall to under 1/10 very easily. Do the math.
If CB's are debasing their currencies, why are the free market selling their hard assets for fiat that was printed this morning at little or no cost?
Why are the free markets trading in fiat currencies for hard assets? For every buyer, there is a seller. Do you not notice how most hard assets are getting more expensive over time? What is the price of necessities today compared to 10, 20, 30 years ago? As far as I can tell, currencies are being debased.
If CB's are debasing their currencies, why are the free market selling their hard assets for fiat that was printed this morning at little or no cost?
****************
What other choice do they/we have?
Corporations sell their assets to people for cash-
People sell their cash to corporations for assets-
How will the US have hyper-inflation unless people get money from increasing wages and or credit? Credit is a non starter and so are increasing wages-which are actually falling-not to mention high and rising unemployment-
http://research.stlouisfed.org/fred2/series/RSBKCRNS http://research.stlouisfed.org/fred2/series/MULT The banks are loaded with cash reserves-but it's going nowhere and until it starts being lent out (it wont be) how can it be inflationary?
http://www.acting-man.com/blog/media/2011/03/cbbalances.jpg http://bit.ly/AeDgG3 To call the USD as the first currency to implode is to not be looking elsewhere- Williams is good at ignoring data that proves otherwise and imo- he doesn't even know how to interpret the M3 chart that he rebuilt-
If you think hyperinflation is dependent on credit or increasing wages, you don't understand what hyperinflation is.
Hyperinflation is a loss of faith in a currency, it has nothing to do with inflation -- it's poorly named after the effect, rather than the cause. When the loss of faith happens, people don't want to hold onto the currency and dump it as quickly as possible, causing the velocity of money to skyrocket and prices to rise due to reduced purchasing power.
I believe most, if not all, cases of hyperinflation, were preceded by deflation at a lower velocity. I disagree with Williams about the US being the first to go (if he indeed claims this) but there is little doubt given US finances that they will either have to devalue the USD directly or do so through printing. Owners of US debt will eventually unload it, which is essentially the mechanism of hyperinflation.
It appears the Fed is trying to control this. First, the Fed is buying on the order of 90% of new Treasuries, which is basically printing, and the fact that they, rather than other investors are buying already indicates low faith in the USD. As the debt rolls over, presumably the Fed will continue its buying pattern, allowing holders of USTs to exit. At some point the Fed becomes on only buyer and only holder of significance, which transitions the USD into a Zimbabwe-like currency, funded by printing.
The Fed likely will never dump USTs, so we don't get hyperinflation from their dumping. However, with endless printing resulting in the dollar devaluing, no one will want to hold the USD as payment (think of something like Oil, for example.) When this happens en masse, that's the hyperinflationary trigger and the velocity spikes as people get rid of USD payments in trade for something valuable as quickly as possible. We're already at negative interest rates -- it costs you money to hold cash -- which is a precursor to velocity going up as well.
Argentina is a great example of hyperinflation, their currency collapsed against the USD with high unemployment and no credit.
Hyperinflation is not an inflation event.
If you think hyperinflation is dependent on credit or increasing wages, you don't understand what hyperinflation is.
***********
I know exactly what hyper-inflation is and what you described is not how it happens-
Credit must come first or otherwise--"where" is the velocity?
Where is all the currency that is supposed to hyper-inflate?
In case you haven't noticed-there is a shortage of currency-
In fact--i think it's almost impossible to have hyper-inflation at this time-
First of all--who the fuck actually believes that the US is in control of the world currencies?
Second--what will the dollar hyper-inflate against?
What's to stop the Euros or Japan or any other major currency from matching any amount of printing that the US does?
If you would have given some study to the charts i posted above--you will see--that the US is lagging behind-both ECB and the JCB in printing-
So tell me this--
Hyper-inflate against what exactly?
Has the US pegged any currency and is the US maintaining a currency peg against any of them-because-that's exactly what would need to happen and any of those countries can fight the peg by printing an equal amount-
Argentina? Were they not "pegged" to the USD when the currency imploded?
The only one who doesn't understand hyper-inflation is you-
"This is truly frightening.
A Boston University economist, Laurence Kotlikoff, maintains America’s national debt is actually much much higher than the already terrible $13.5 trillion. Kotlikoff thinks it’s 14 times bigger — $200 trillion!"
https://fellowshipofminds.wordpress.com/2010/10/29/economist-says-real-u...
http://fellowshipofminds.files.wordpress.com/2010/10/my-work-here-is-don...
Can this economics proffessor be correct? $200 Trillion?
usdebtclock.org
just add the bottom section to the 100% BS # that the press talks about.
the funniest part? gdp grows at 2-3% fully jacked by banana republic ben's jungle juice.
the bottom section, medicare/medicaid, etc. grows at what ... 8-10%?
if these guys couldn't counterfeit at will, they would have been hung high in time square a long time ago
JohnKozac
Yes, he's very close to the real number.
He's using the price basis Mr. Williams is advocating, and adding the Unfunded liabilities.
I would say 160T is closer, but w/Derivatives throw in another 300-400T.
Won't the people be pissed when they don't get their SS and free medical care like the government promised? Either the government collapses or we spiral into a North Korea type totalitarian state. That will be decided by a civil war of course
Thats including Unfunded Liabilites like insurance & medicare etc John!
yes
Collapse being engineered to bring about rule of SDRs or digital money. Get chipped now and avoid the rush.
There will never be a gold backed currency again. Mercantilists will take the gold and never return it. It has happened before and it will happen again. China and India will take the gold and it will never re-emerge. The more likely candidate would be energy. Energy forms the basis of our modern civilization. A KWH bill would make the most sense.
Maybe a currency backed by food
Hasn't it always been about natural resources exploitation. When you're out, you're done.
Sinclair states the US dollar will experience a major move down beginning with the 3rd week of June 2012. Both Sinclair and Williams are openly calling for 2015 as the timeframe for hyper-inflation in the US. The crisis will seriously intensify on this side of the pond as soon as the Euro crisis is resolved one way or another.
http://silverdoctors.blogspot.com/
Assuming that:
1.)US has the gold that is reported by this chart
2.)That gold remains the ultimate store of value--- in a world where other stores of value-like solar PV wafers, barrels of oil, seeds and fertilizer (all Mosanitized sterile hybrid- eventually no need for bees or other pollinators) do not undermine this historical monetary constant
3.) The govts do not make illegal the use of gold for "barter" which removes traceabble money from taxation
Then the chart really should be entitled worlds biggest chumps, with China leading the way holding the most paper, yet less gold than US, the master dumper of paper.
@Felak
Yeah, but I betcha Three Card Monte has Italy's gold collateralised somewhere in those loans the IMF have been making it. How much does anyone want to bet that the likes of JP Morgan end up with it to back a new currency.
JPM like a battlefield scavanger prying the gold teeth out of the dead and near-dead.
wrong. there are alternatives to the USD and the rest of the funny money.
http://silverdoctors.blogspot.com/2012/02/eric-sprott-silver-will-become...
Gold is great but I'm always a little leery of the fact that the elite own so much of it. I'm sure they'll use it to buy up what they want after fiat collapses. And we all should own it to protect ourselves but don't you think silver might be their real Achilles heel? Now that silver is being used up through so many industrial uses and stockpiles have been allowed to decline to such small levels?
I wouldn't be surprised if that was a plan too: Eliminate as much above ground silver in the world so there won't be enough of it to be used for international trade. Let silver supplies run down and then silver won't be able to compete with their backup currency: Gold.
There will be so few people who will be able to get their hands on silver once TSHTF. Hell - why couldn't they call it a strategic metal and ban its trading? How many pounds of silver are in each Tomahawk? Damn, I think I just got myself all worked up. I'm going to go look through my change again and see if there are any silver dime in there.
I'm watching Money Masters again today. It points out that silver is a better money for the people because TBTB control the gold. Yes the bouillon is scarce, but don't forget there are huge amounts of reserves in our drawers. I think I read somewhere there is 12 billion ounces in jewelry, silverware etc... in private possession. It isn't being recycled because you can pay the rent with a gold necklace, but your silver isn't worth enough to bother pawning (for now anyway). With a proper readjustment of silver price, that silver will flow back into the money supply. Just a thought.
after they crash the world economy, the rothschild banker system will buy anything worthwhile for a pittance. can't even speculate how much gold they are sitting on as this has all been planned well in advance. its pretty naive to think that they don't have the next stage all planned out. during the transition period however, they are most vulnerable...
Industrial silver use for the most part requires tiny amounts of silver, usually as a silver compound with other chemicals or elements. It has to be this way to be economically feasible on a large scale production system.
A tiny amount of silver in a lot of production equals a large amount of silver, because the silver is such a tiny amount it isn't worthwhile to try to recover it from old products.
Some industries require large amounts of silver, film photography for instance. These are the exception.
The real problem will be the price of oil, at some point all oil will be needed for farming or finding and producing more oil. Silver mining will not be deemed economically productive. The price will soar.
Some industries require large amounts of silver, film photography for instance
This is not true any longer, as we have moved into digital films, and photography, the amount of silver for this use has dropped off the map.
That is one of the reasons for the Price tanking years ago on silver,it's #1 use was taken away.
Solar is a huge market, but Solar is taking a major dump.So, there goes the silver use for solar.
Also, Silver Mines are few and far between, most silver (as most here are aware) is a by product of copper mining.
To date silver has not brought enough ROI for anyone to dig a silver mine just for silver.A few exist,several in Mexico, and SA, if the prices go past the (rather when) prices move past that magic $50.00 mark, look for more companies to start doing more Silver only mining.
Not until.
Argh. You are wrong about how the decline of photographic use of silver affected the price of silver-- but don't worry, it's a common misconception.
The NET use of photographic silver was always very low, mainly because the vast majority of photographic silver was recovered and recycled every year. So when the digital camera came on the scene, the net consumption of silver due to photography did decline, but not by nearly as much as one might expect by just looking at the gross consumption figures.
The other wrong part of your argument: the price of silver began to RISE dramatically after the digital camera arrived on the scene. Not fall, which is what your argument implied.
Buckaroo Banzai
Then I stand corrected.
Everything makes sense until he says "get into the Swiss Franc, CAD, etc.".
The CHF is pegged to the EUR, so if you buy CHF, you own EUR!!! That only makes sense if you are making a peg break play, and that's only for speculators. The CAD has it's own problems (google "crack shack or mansion"). Other countries will have to devalue their paper or institute capital controls.
The only place to run to is PMs and other "stuff". VERY surprised Williams doesn't get this.
I think you're probably right, looking at the long term, but I wonder if we won't see an interim period where investors are flushed out of the euro and into the USD, in some misguided "flight to safety." US bonds are the only market big enough to accommodate the sheer volume of currency flows we'd be looking at.
Then, imo, there will come a realization that the USD is just paper, too, and US debt levels are impossible, and UST's are just another politician's promise. Many investors will then run to the "commodity currencies" (Candos and Aussi $), in the fond belief that they're kinda sorta backed by real resources. I think this is the period when the investments that John Williams is refering to might do very well. How long it will last is anybody's guess.
Finally, common sense will prevail (and human genetic memory will kick in), and we'll go back to a monetary system that has worked for thousands of years. And anyone who has been paying attention to ZH for any length of time will own a Gulfstream V.
Eurozone has gold reserves wich are higher than USa? It would be interesting to compare the gold holding of CBs world wide.
Here it is : Gold reserve - Wikipedia, the free encyclopedia