Timing the Collapse: Ron Paul Says Watch the Petrodollar

[Dianne]

I was thinking the same thing... no clue what "must be internationalized" means"

 

[nbruno322]

I was thinking the same thing... no clue what "must be internationalized" means"

Here is from the site:

Become internationalized to reduce the political risk of being dependent on any single, and potentially desperate, government.

There are 4 broad areas of internationalization.

1. Savings: This area covers how to setup offshore bank/brokerage/financial accounts, foreign real estate and "bolt-holes" in case of trouble, moving and owning gold overseas, and structures like foreign trusts that help to legally reduce taxes.

2. Yourself: Obtaining a second passport from another country and establishing legal residency in foreign countries.

3. Income: The structuring of your cash flows to reduce dependency on any one source in any one jurisdiction. Establishing additional sources of revenue, international investment opportunities and trends, setting up an offshore company.

4. Digital Presence: This commonly includes your IP address (which can often pinpoint you to a precise physical address), email account, online file storage, and the components of personal/business websites.

http://www.internationalman.com/about-im

 

[Zippyjuan]

Zippjuan, I am curious. Can you please share with us what your emergency plan is for when the USD collapses Weimar Berlin style?

I don't see that happening.

 

[devil21]

I don't see that happening.

Rainbows and unicorns forever? I'll rephrase Petar's question. Can you please share with us what your emergency plan would be in case of hyperinflation of the dollar?

 

[devil21]

China Fires Shot Across Petrodollar Bow: Shanghai Futures Exchange May Price Crude Oil Futures In Yuan
http://www.zerohedge.com/news/2013-...-shanghai-futures-exchange-may-price-crude-oi

 

[Miss Annie]

I don't see that happening.

Would you mind explaining why you don't see it happening? If there is something that I should feel better about, I would love that! Dr Paul sees it happening, as well as Schiff and several others. So what is it that you are seeing that we are not?

 

[Zippyjuan]

Rainbows and unicorns forever? I'll rephrase Petar's question. Can you please share with us what your emergency plan would be in case of hyperinflation of the dollar?

I don't have a plan for Weimar hyperinflation because I don't expect it to happen.

 

[Zippyjuan]

Would you mind explaining why you don't see it happening? If there is something that I should feel better about, I would love that! Dr Paul sees it happening, as well as Schiff and several others. So what is it that you are seeing that we are not?

Even Peter Schiff has backed off calling for hyperinflation. http://www.silverdoctors.com/peter-schiff-backpedals-on-hyperinflation-call/

 

[jllundqu]

I don't have a plan for Weimar hyperinflation because I don't expect it to happen.

OK... people are asking you what you think and you're stalling.

Everyone, left and right, knows a currency war is being waged, that the petrodollar is under attack, that the BRICS are ditching the dollar, that the fed printing money to the tune of 85 billion a month (that we know about) is eventually going to cause another bubble to burst, basically the entire global financial system will be reset and probably start a few wars in the process... if you don't believe that (As Ron Paul does) then what do you think is going to happen? That the fed can print $ forever without consequence? That the world will continue to subsidize our debt-fueled consumption based lifestyle? That the 90+million people out of the workforce will suddenly find jobs? That the economy will grow at 10+% year over year to fuel our debt payments? That our trillions in unfunded liabilities will be sufficiently restructured without the masses rioting in the streets?

Enlighten us.

 

[oyarde]

I don't have a plan for Weimar hyperinflation because I don't expect it to happen.

I have no idea how this all ends , but I cannot see our worthless paper dollar surviving intact .

 

[Zippyjuan]

OK... people are asking you what you think and you're stalling.

Everyone, left and right, knows a currency war is being waged, that the petrodollar is under attack, that the BRICS are ditching the dollar, that the fed printing money to the tune of 85 billion a month (that we know about) is eventually going to cause another bubble to burst, basically the entire global financial system will be reset and probably start a few wars in the process... if you don't believe that (As Ron Paul does) then what do you think is going to happen? That the fed can print $ forever without consequence? That the world will continue to subsidize our debt-fueled consumption based lifestyle? That the 90+million people out of the workforce will suddenly find jobs? That the economy will grow at 10+% year over year to fuel our debt payments? That our trillions in unfunded liabilities will be sufficiently restructured without the masses rioting in the streets?

Enlighten us.

The economy is still too weak for producers to raise their prices by much. Demand is weak and they are afraid if they raise prices they will lose sales and revenue. If the economy gets a lot stronger, then people will demand more money and goods and producers will have more room to raise prices but I think the economy is going to be in the slow growth phase for several years. Even that though won't cause "Weimar Germany" style hyper-inflation. That means prices rising at least 30% every month.

What are you doing to prepare? How many years can you "go it alone" if the worst happens? I am debt free for one.

 

[Miss Annie]

The economy is still too weak for producers to raise their prices by much. Demand is weak and they are afraid if they raise prices they will lose sales and revenue. If the economy gets a lot stronger, then people will demand more money and goods and producers will have more room to raise prices but I think the economy is going to be in the slow growth phase for several years. Even that though won't cause "Weimar Germany" style hyper-inflation. That means prices rising at least 30% every month.

What are you doing to prepare? How many years can you "go it alone" if the worst happens? I am debt free for one.

Me too..... debt free. What about all the QE and the devaluation of the dollar? Is that not capable of causing a crisis all by itself? (Please forgive my ignorance. Very new to economics here).

 

[Zippyjuan]

If we were in a solid, growing economy (when you wouldn't be doing QE anyways though), all of the money the Fed has been trying to inject into the economy vie the various QEs would be causing prices to rise- but it isn't. Biggest reason is that there isn't demand for that money- it isn't circulating- getting borrowed and spent. More money chasing the same amount of goods leads to price increases. People aren't demanding more goods and services and so businesses aren't needing more money to invest into more production of these goods. The money is either sitting at the banks and financial institutions or at the Fed itself in the form of excess reserves. Excess reserves is the amounts of money banks haven't loaned out. In a good economy, that is usually near zero. Right now, it is about $2 trillion.

Some people have posted a chart of the Monetary Base- that is cash money plus excess reserves- it is the excess reserves portion which has been growing a lot. What is really the one to watch is known as "velocity". This is a measure of how quickly money is circulating. Higher velocity means more potential for higher prices. Velocity is very low right now which is what is keeping price inflation in check. If the economy started to soar suddenly and they started demanding a lot of those excess reserves, then the chances of higher prices increases. The faster the reserves come out, the higher the risk of higher prices. If it comes out slowly, then the risk of higher price is lower.

Here is a velocity chart- the number isn't important but note how low it is compared to the past:

http://research.stlouisfed.org/fred2/graph/?id=M2V

And here is the excess reserves chart- where much of the QE money has ended up:

http://research.stlouisfed.org/fred2/series/EXCRESNS

 

[Miss Annie]

If we were in a solid, growing economy (when you wouldn't be doing QE anyways though), all of the money the Fed has been trying to inject into the economy vie the various QEs would be causing prices to rise- but it isn't. Biggest reason is that there isn't demand for that money- it isn't circulating- getting borrowed and spent. More money chasing the same amount of goods leads to price increases. People aren't demanding more goods and services and so businesses aren't needing more money to invest into more production of these goods. The money is either sitting at the banks and financial institutions or at the Fed itself in the form of excess reserves. Excess reserves is the amounts of money banks haven't loaned out. In a good economy, that is usually near zero. Right now, it is about $2 trillion.

Some people have posted a chart of the Monetary Base- that is cash money plus excess reserves- it is the excess reserves portion which has been growing a lot. What is really the one to watch is known as "velocity". This is a measure of how quickly money is circulating. Higher velocity means more potential for higher prices. Velocity is very low right now which is what is keeping price inflation in check. If the economy started to soar suddenly and they started demanding a lot of those excess reserves, then the chances of higher prices increases. The faster the reserves come out, the higher the risk of higher prices. If it comes out slowly, then the risk of higher price is lower.

Here is a velocity chart- the number isn't important but note how low it is compared to the past:

http://research.stlouisfed.org/fred2/graph/?id=M2V

And here is the excess reserves chart- where much of the QE money has ended up:

http://research.stlouisfed.org/fred2/series/EXCRESNS

Thanks for the reply and explanation. So what does it mean, and why are we seeing all these warnings about the SHTF when the fed starts to taper the QE? Is there any truth to that? Is that something to be concerned with?

 

[Petar]

I don't have a plan for Weimar hyperinflation because I don't expect it to happen.

Would you have anticipated it if you were in Russia just before the collapse of the USSR?

 

[pcosmar]

Would you have anticipated it if you were in Russia just before the collapse of the USSR?

Doubts.

 

[Zippyjuan]

Thanks for the reply and explanation. So what does it mean, and why are we seeing all these warnings about the SHTF when the fed starts to taper the QE? Is there any truth to that? Is that something to be concerned with?

Hype. Tapering QE will have little impact on the economy. Tapering means the Fed spending $5 billion less a month buying securities- not even a ten percent reduction. Not significnat in a $14 trillion economy. Interest rates may rise slightly but it won't mean the end of the world as we know it.

 

[enoch150]

Hype. Tapering QE will have little impact on the economy. Tapering means the Fed spending $5 billion less a month buying securities- not even a ten percent reduction. Not significnat in a $14 trillion economy. Interest rates may rise slightly but it won't mean the end of the world as we know it.

I'm surprised you used M2 rather than M1 for that chart earlier. M1 is more closely correlated to the real world.

Here's what I've been trying to figure out - when the Federal Reserve begins tapering, everyone knows that interest rates will start going up. At the beginning of that process, why would anyone buy long term debt knowing that interest rates will be going up in the future? It seems to me that everyone will pile into T-Bills.

 

[Zippyjuan]

I'm surprised you used M2 rather than M1 for that chart earlier. M1 is more closely correlated to the real world.

Here's what I've been trying to figure out - when the Federal Reserve begins tapering, everyone knows that interest rates will start going up. At the beginning of that process, why would anyone buy long term debt knowing that interest rates will be going up in the future? It seems to me that everyone will pile into T-Bills.

M2 is the most commonly used measure of money- not M1.

M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside of the private banking system as reserves.

MB: (monetary base) The total of all physical currency plus Federal Reserve Deposits (special deposits that only banks can have at the Fed). MB = Coins + US Notes + Federal Reserve Notes + Federal Reserve Deposits

M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

MZM: 'Money Zero Maturity' is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + money market funds

M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

http://en.wikipedia.org/wiki/Money_supply

The M's move up in terms of lower liquidity.

Here's what I've been trying to figure out - when the Federal Reserve begins tapering, everyone knows that interest rates will start going up. At the beginning of that process, why would anyone buy long term debt knowing that interest rates will be going up in the future? It seems to me that everyone will pile into T-Bills.

Two issues with that. One is that if rates are rising (or you expect them to) bonds are NOT where you want to be. Value of bonds moves inversely to interest rates- higher rates means lower prices or value of bonds. Rising rates means lower returns- unless you keep the bonds until they mature.

Second, if people do rush into Treasuries, that will increase the demand and raise the prices of them which will push rates lower again.

 

[enoch150]

M2 is the most commonly used measure of money- not M1.



http://en.wikipedia.org/wiki/Money_supply

The M's move up in terms of lower liquidity.

Yeah, I read something by Gary North a while back where he demonstrated that M1 was the most closely associated with inflation, as measured by CPI. The others were much less useful.

Two issues with that. One is that if rates are rising (or you expect them to) bonds are NOT where you want to be. Value of bonds moves inversely to interest rates- higher rates means lower prices or value of bonds. Rising rates means lower returns- unless you keep the bonds until they mature.

Second, if people do rush into Treasuries, that will increase the demand and raise the prices of them which will push rates lower again.

They would rush into short term Treasury Bills and avoid long term bonds. That would push short term rates down and long term rates would go way up. This would be a short term phenomenon, if it isn't interfered with. Even if someone purchasing long term bonds were to hold them to maturity, why would someone want to be locked into a 2% yield for 10 years when they could simply buy ultra low yielding T-Bills for a few months and wait for long term rates to go up? They could take a 0.1% yield for six months (while 10 year bonds are at 2%) and then after the 10 year went higher, they could roll that into a 10 year bond 5% or whatever. (I'm making up the rates as an example, not a realistic assumption.)

My problem is, I don't see how the Federal Reserve can provide a gradual transition from low long (and short) term rates to higher long (and short) term rates, which seems to be the intent of tapering rather than stopping cold turkey. What I see happening, even with a taper, is low short and low long term rates very rapidly transforming into low short term and high long term, and then a more gradual rise in the short term rates.