Will China's Currency Experiment be Final Nail in U.S. Dollar's Coffin?

In a bid to protect their export business, China is implementing an experimental program concerning their currency to see if it will work better than the failing U.S. dollar. If it's successful, the program, along with other pressures on the dollar, could spell the end of the greenback as we know it.

Shanghai Daily reports how the program will be implemented:

"China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China's two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

"Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.

"Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars..."

With every move by the U.S. government and Federal Reserve the wrong one, and as they continually interfere with U.S economy through socialist expansion programs, the greenback has little chance of surviving as a viable currency.

Combine that with this move by China, and the conclusion is there will probably be a paradigm shift in the global currency market in the not-too-distant future, with the U.S. dollar simply another weak currency in the market, if it survives at all.

Peter Schiff: U.S. Bond Market Bubble about to Burst

Peter Schiff puts forth an excellent argument on not only why the U.S. Treasury bond market is in a bubble, but why that U.S Treasury bond bubble is about to burst. When will the bond bubble burst? We of course can't tell, but the conditions are set for it to happen in the not too distant future.

The underlying cause is the current buyers of US Treasury bonds are primarily speculators. What has brought that about?

According to a recent Federal Reserve announcement, the Fed says it's committed to buying long term Treasury Bonds. What that tells you is other people or governments are getting out of the U.S. dollar and looking at other places to put their money. If that wasn't the case, the Fed wouldn't have made that announcement, as it would have been meaningless if money was flowing in to buy up U.S. debt.

In response to that announcement, speculators are now the ones buying the bonds for the purpose of selling them to the announced spending spree of the Fed. No one is in the market for holding US bonds until maturity now; at least no one that understands even a little bit of what's really going on.

To buy those bonds the Fed will have to print more money to make the acquisitions. Consequently, the more the Fed buys, the less the bonds will be worth. The reason is the more the Federal Reserve prints money, the more the dollar drops and collapses in value.

U.S. Treasury bonds are now a ponzi scheme, because the thing underpinning the success of the US bonds is the dependence on people to continue buying them. If people, funds and countries stop buying bonds, as they are now starting to do, eventually the last buyer comes in and the seller is left with no options but to hold them.

So when people stop loaning money through buying these bonds, the bubble will burst. Schiff believes the bubble is already here, and it's not that far away until the pain comes.

Schiff adds that the Obama stimulus package is a disaster, and will only make things much worse, as the same principle involving the upcoming bond bubble bursting will come about from the continuing debasing of the U.S. dollar by the endless printing of money.

So the illusion that the U.S. dollar is a haven for investors is already starting to burst and collapse, and the bond market bubble about to burst. The collapse of U.S. Treasury bonds isn't going to happen overnight, it'll be gradual and subtle, and we'll have to watch things closely so we're not lulled into thinking they're safe and will hold their value. They definitely aren't going to hold their value in the ongoing U.S Treasury fund bubble.

While it's quite possible the air could come out of bonds very quickly, in all likelihood, it'll be a slow, deflating process rather than a quick burst of the US bond market.

The U.S. dollar is no place to be at this time, and the house and senate are about to pass over $800 billion more in bailouts which will continue to deflate the U.S. dollar and U.S. Treasury bonds.

The bond bubble will burst and will collapse along with the U.S. dollar. If I was invested in the dollar, I would get out of it as quickly as I could, as once things start to collapse and slide, it'll be like a slow avalanche continually building up momentum until it overtakes anyone on the mountain. Investing in the U.S. Treasury bond market and U.S. dollar are that mountain, and if you continue to ride it you'll find yourself and your money suddenly covered with the snow of a weak dollar and stuck with a bond you thought would be of value in the years ahead.

There's no doubt there's an ongoing bubble in the U.S. Treasury funds market, and nothing will change the disaster about to happen to those holding the bonds in the end. It looks like for the most part it'll be the U.S. government who has foolishly announced it'll buy up the bonds. That has released the plethora of speculators buying Treasuries so they can then resale them to the government at a profit. Don't get caught up in that game.

One final and big piece of the Treasury bond collapse is it's also similar to the forced liquidation which drove down the prices of some commodities like gold, which obviously is the investment of choice in times like these.

Because bonds are one of the easiest to unload investments, being so liquid, we'll start to see, and have already seen, some countries slowing down their investment in the bond, and probably will start to unload them to get access to more cash. When that happens, it's hard to tell how devasted the collapsing bond market will become.

As Peter Schiff says, the US Treasury bond market is in a bubble which is about to burst, don't get caught holding bonds or U.S. dollars when it happens. We don't know when the U.S. bond market will collapse, but we know the conditions are ripe for it to happen. It's not a question of whether the Treasury bonds will collapse, it's only a question of when and how quickly they'll collapse.

Is the Party Over for U.S. Dollar? Probably!

Earlier this month I asked the question of when the artificial strength of the U.S. dollar was coming to an end. We may be seeing the initial move toward that happening, as it seems deleveraging, which propped the dollar up, may be winding down.

The only question for the dollar, has been how long the deleveraging would take to unwind, as the complexity of the funds involved made it impossible to know. It seems the majority of that has happened now, and the dollar is responding in a predictable manner.

With U.S. obligations now in the trillions of dollars, the absolute necessity of a strong U.S. dollar is crucial to the successful implementation of the misguided bailouts and simulus package, but that isn't going to happen any time soon.

Some were hoping the deleveraging would last longer, giving the dollar a longer period to remain strong, but that isn't going to be the case. Most analysts believe that not only is downward pressure coming short term, but it should last for some time as well.

Today the greenback dropped to a 13-year low against the yen, and fell to its largest one-day loss against the euro, as currencies responded to the slashing of the benchmark interest rates to a range of zero to 0.25 percent, which is the lowest among major economies in the world.

While there are those looking to what Japan did as a blueprint for the U.S., that's a huge mistake for a couple of reasons.

First, the Japanese economy hasn't come near to recovering from its performance when they instituted a similar strategy as set forth by president-elect Obama. He wants to build up the infrastructure of the nation to create jobs.

Just that alone is an unfortunate idea, as it in reality crushed the Japanese economy.

But that's not the only reason it's foolish and misguided. The second reason is the difference between Japanese and American investors.

In Japan, people were willing to invest in the bonds issued by the government because of the huge savings available, as well as the willingness of local investors to fund the debt. Americans can't do that, as they basically have no savings, which makes that a mute point.

So who will fund U.S. debt with the low interest rate and the government talking pursuing quantitative easing (buying Treasuries), that will put more downward pressure on the U.S. dollar.

In the end, the government should have listened to the many voices saying they should let the market sort out the mess, as it's the best mechanism available to do that.

Now that they've decided to enter fully into the fray, they've done far more harm to the U.S. dollar, the economy, as well as the American people.

Essentially everything they've done has backfired and been impotent. It will continue to remain that way no matter how much money they throw at the problem. We're all going to suffer because of their inability to leave things alone and resist intervening.

We're going to be in for a significant bear market concerning the dollar for some time to come. It's only just beginning.

German Chancellor Angela Merkel Blasts Use of "Cheap Money" for Economic Management

Although German chancellor Angela Merkel and the German government has implemented a fiscal stimulus plan, it was an extremely modest €12bn over the next two years. While that was probably a mistake, at least Merkel understands that creating money from thin air won't do a thing to take care of the problem they're in.

Merkel and the German government have been coming under increased pressure to contribute to a huge stimulus in relationship to the European Union; now standing at €200 billion. That would be about 1.2 percent of GDP of the 27 member states.

Talking about the contribution of the drop in value of the U.S. dollar to the current global economic crisis, Merkel stated to the German parliament:

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

Some analysts assert the action wouldn't do much to change the economic crisis anytime soon. They're of course right, as is Merkel.

History has proven that the utter stupidity of the New Deal did more to create the Great Depression in the U.S. than anything else. Printing money, devaluing currency, and generating inflation is never an answer to an economic crisis.

The best thing to do is let it play out and allow the market correct itself. That cleans out the bad businesses and leadership, and makes the free market much stronger.

Throwing money at poorly run companies does nothing but reinforce poor management and keeps the real problems from being solved. Government interference in what would have been a short period of economic struggle created the infamous Great Depression in the U.S. We don't need to do the same and create a worldwide one.