The Crash of the U.S. Dollar

[competentone]

This dates to September 2007, but is probably more relevant now than then.

The eventual bursting of the bubble in U.S. Government-issued securities is likely to result in an even more dramatic crash of the dollar (as opposed to a longer "sharp decline" that could have been the method of collapse without the recent bubble).

(About a 7 minute video, with comments from Peter Schiff and others.)

[old man neri]

Wait until they start pricing oil in Euros instead of Dollars....then you will really see a crash.

[Porsche-O-Phile]

Wait until they start pricing dollars in oil instead of Euros...

[competentone]

Originally Posted by Porsche-O-Phile

Wait until they start pricing dollars in oil instead of Euros...

How many dollar bills does it take to equal the BTUs in a barrel of oil?

[Noah930]

Originally Posted by competentone

How many dollar bills does it take to equal the BTUs in a barrel of oil?

Depends. How flammable is the stuff they make dollar bills out of, these days?

[tabs]

Is this supposed to be something new? Go back in the achives of this Board for the past 5 years and you will find several Threads I have written on this topic. Very simply put, the US because it is the currency that oil trades for. it is able to manipulate the currency to the benifit of the US.

Everybody has to have piles of USD onhand to buy oil. So those USD are never traded they are held in reserve. So we can print more, it also puts other nations in a position of having to support the USD or risk having those USD become worthless. Get the picture.

[competentone]

Originally Posted by Noah930

Depends. How flammable is the stuff they make dollar bills out of, these days?

Let's see what we can estimate.

"Paper pellets" (discussed here: http://74.125.47.132/search?q=cache:T8n3FCbKiG4J:www.focusonenergy.com/files/Document_Management_System/Renewables/W_RB_MKFS_Paper_pellets_indust_fact_sheet.pdf+%22b urning+paper%22+btu&hl=en&ct=clnk&cd=1&gl=us ) are described as having BTUs of 8,500 to 11,500 per pound.

A U.S. dollar bill weighs approximately 1 gram; so it would take about 454 bills to equal one pound.

An internet search indicates there are about 5.8 million BTUs per barrel of oil.

If we figured dollar bills as having 10,000 BTUs per pound, it would take 580 pounds of dollars to give the equivalent heat energy in a barrel of oil.

That equates to about $260,000 to equal the heat energy in a barrel of oil.

At the rate the Fed is creating new money -- and particularly considering the "mentality" of people running the Fed -- it wouldn't surprise me to see oil at $260,000/barrel sometime over the next 50 years.

[competentone]

Originally Posted by tabs

Is this supposed to be something new? Go back in the achives of this Board for the past 5 years and you will find several Threads I have written on this topic. Very simply put, the US because it is the currency that oil trades for. it is able to manipulate the currency to the benifit of the US.

Everybody has to have piles of USD onhand to buy oil. So those USD are never traded they are held in reserve. So we can print more, it also puts other nations in a position of having to support the USD or risk having those USD become worthless. Get the picture.

I noted that the video is from 2007 -- and didn't mean to suggest it is a "new" topic for the board. I just think, looking toward 2009, it is a good subject to revisit.

As for the USD being the "reserve" currency for oil trading -- there is no need for other countries to maintain this position -- and that's the whole point of the video.

What happens when other countries decide that they don't like our "printing" new dollars and decide to "cut their losses" on their dollar holdings and buy oil (and other goods) using other currencies?

Do you think our "printing" can go on indefinitely without other people in the world reacting to it eventually?

[kach22i]

RON PAUL EXPLAINS OIL PRICES
http://www.youtube.com/watch?v=3qYmrbmo0M0

[MRM]

Dollar bills are made out of cotton with a small amount of other materials. They don't burn on their own. You have to burn them over a fire fueled by something else. An oil burner works best.

The Dollar has already crashed. It's not going anywhere but up for a couple of years. After that, all bets are off, but nothing will happen to it that a sharp increase in interest rates won't cure.

Edit, Yes, everything else crashed more. We are in a deflationary cycle for at least the next two years. The dollar will strengthen at least that long.

[The Gaijin]

Crashed yes, but all other currencies and commodity prices have crashed even more - so in relative terms, it is holding up pretty well.

[competentone]

Originally Posted by MRM

Dollar bills are made out of cotton with a small amount of other materials. They don't burn on their own. You have to burn them over a fire fueled by something else. An oil burner works best.

The Dollar has already crashed. It's not going anywhere but up for a couple of years. After that, all bets are off, but nothing will happen to it that a sharp increase in interest rates won't cure.

Edit, Yes, everything else crashed more. We are in a deflationary cycle for at least the next two years. The dollar will strengthen at least that long.

Cotton burns, or are you saying dollars are treated with a flame retardant?

Of course, any questions about the dollar's flammability, or lack there of, is minor compared to the questions I have about your conclusions regarding "deflation" and your expectations on the dollar's relative "strength."

What time period are you referring to when you say the dollar has "already crashed"? When did this "crash" take place?

Besides the blip downward in commodity prices (which could easily be a manipulation conducted in the futures markets by those with unlimited fiat dollars at their disposal) how have you concluded that we are in a "deflationary cycle"?

How have you arrived at the "at least...two years" as the time frame for the "deflation" you expect?

How do you reconcile your expectations for "deflation" with the unprecedented money-creation actions carried out by the Federal Reserve over the past few months?

Literally trillions of new dollars have been created "out of thin air" and have been "lent" into the economy by the Fed; how do you conclude that all that new money in the economy will not be driving prices higher?

[MRM]

Dollar bills are woven tightly enough that they will not burn. Put a match to one. It will burn as long as you have a good flame under it. No matter how you try, it will not keep burning when you pll the flame away.

We have had this conversation before, so we'll just have to agree to disagree. You really need to run a few basic equations on the money supply and growth of the economy. Here is a quick look at the fundamentals of this economy.

The worldwide economy is contracting. The drop in demand and production is nothing short of startling. One bit of data for you to bring it home. In third quarter 07, Volvo's commercial truck division sold a little over 40,000 heavy trucks. Not bad. In the third quarter of 08 they sold 128 trucks. That's right, one hundred and twenty eight trucks. October of 2008 was like someone shutting off the faucet. Fourth quarter data hasn't hit the street, of course, since the fourth quarter isn't quite over, but when it does it will be worse than the worst anyone is saying now.

The economic contraction is world wide. There is no bright sector and no safe spot on the globe. There is excess manufacturing capacity worldwide that is being made worse by the reduction in demand. Manufacturers are no longer worried about raw material prices; they are worried about over capacity. With over capacity comes price wars. It's just classical supply and demand.

We have not seen the bottom yet. The situation will deteriorate through the first quarter of 09 and will hit bottom about mid summer 09. It will stay there until about the firt quarter of 2010 when things will pick up to the point where people will notice.

So the logical result is at least 24 months of serious deflation.

The problem with all the new money that was "created out of thin air" is that for every dollar being put into the economy with one stimulous package or another, more dollars are being lost and are coming out of the economy. There simply isn't the wealth in the country or the world that there was six months ago, let alone a year ago. And then there is the velocity of money. At the height of the bubble, the mortgage backed securities could leverage $400 of risk for every dollar invested. You can't do that anymore. You almost can't leverage anything. The velocity of money has been reduced to a trickle, so the billions injected into the economy had a marginal effect.

So, as you say, the feds are pumping money into the economy, and someday demand will pick up. So what happens then? Well, it takes time for the effects of the improved economy to show, and the feds will certainly keep pumping momey in until the economy feels like it's improving, which is to say, too long. At that point, we will see inflaion because the economy will be expanding again and the money thrown at it will cause price instability. The feds will react normally for them by raising interest rates briefly and sharply.

So what does that mean for us in the real world? It means that you should hoard cash for the next year or so, and delay major purchases, and not go into debt if you can help it, because prices are falling and repaying debt with tomorrow's dollars is more expensive than today's dollars (the oposite of inflation). The stock market will stay tanked until at least mid 09, and will remain depressed for years. And when inflation does kick in, you should take all those piles of cash you've been saving and buy those nice juicy Treasury Bonds that will have returns in the 9% range. And then sit on them as the economy gets back to normal and the stock market starts returning a puttering 2-3% above inflation again.

[imcarthur]

Well, the Russians are ready to help:

WSJ: Russian Professor Predicts End of U.S.

Ian

[The Gaijin]

Originally Posted by The Gaijin

Crashed yes, but all other currencies and commodity prices have crashed even more - so in relative terms, it is holding up pretty well.

Dec. 31 (Bloomberg) -- The yen and the dollar were headed for annual gains versus the euro as the first simultaneous recessions in the U.S., Europe and Japan since World War II encouraged investors to take refuge in the currencies.

Mother said I should have been an economist!