As a non-expert in the matter, I don't know how finally to determine how correct Peter Schiff is when he predicts calamity for the U.S. economy due to a future collapse of the dollar.
The argument he posits about the fundamentals of the U.S. economy - namely, those described in the "six Asians and an American are stranded on an island" analogy - strikes me as quite persuasive.
At bottom, the accuracy of Mr. Schiff's prediction seems to hinge on the likelihood that foreign debtors will change their minds about further lending to the United States.
Thus, how likely is it that, sometime in the relatively near term, foreign lenders will stop lending to the U.S.?
[For those who haven't heard this analogy: Six Asians and an American are stranded on an island. The first day, they divide up responsibilities. The American is assigned to eating. One of the Asians is assigned to fishing, another to foraging, yet another to hunting, etc. At the end of each day, they gather on the beach, where the American eats the food produced by all the Asians, leaving enough crumbs for the Asians to eat and be able to go back out the next day for more food.
Economists (ahem, NON-AUSTRIAN economists) would look at this situation and conclude "Hey, without the American, the island economy would surely collapse, because without his demand for food, none of the Asians would have a job." Of course, in reality, the island economy would in no way collapse, Indeed, the standard of living for each Asian would immediately increase dramatically if they were to boot the American from the island.]
Dollars have a use: Dollars, and only dollars, buy oil.
Counter-intuitive that the US empire is built on OPEC, isn't it? All of America's arch-enemies just happen to be countries that own oil and want to sell it for euros: Iraq, Iran, Venezuela.
This is one good reason, it seems, to argue why the dollar will survive.
But are there are also good reasons to believe that the dollar may not survive. If the fundamentals of our "frankenstein" economy are as bad as Mr. Schiff claims, for instance, and we really CAN'T pay our creditors back, why in the world would they keep throwing money at us?
JonBostwick: Dollars have a use: Dollars, and only dollars, buy oil. Counter-intuitive that the US empire is built on OPEC, isn't it? All of America's arch-enemies just happen to be countries that own oil and want to sell it for euros: Iraq, Iran, Venezuela.
Of course Schiff is right.
The world is going to realize that they have been duped by America and other currencies will become accepted as payment for oil. OPEC countries are already working to establish oil bourses that trade in Euros.
An excellent explaination is provided here: http://www.energybulletin.net/node/12125
Morbo:The world is going to realize that they have been duped by America and other currencies will become accepted as payment for oil. OPEC countries are already working to establish oil bourses that trade in Euros.
Dude, this article is from 2006. And I'm not surprised its predictions failed to materialize - the author's tone is deeply cynical and way out of proportion to the degree of evidence he (fails to) provides.
Austroglide:Dude, this article is from 2006. And I'm not surprised its predictions failed to materialize - the author's tone is deeply cynical and way out of proportion to the degree of evidence he (fails to) provides.
They have partially materialized. The Iranian Oil Bourse is not yet trading crude in Euros. Already the US is considering military action in Iran.
The only prediction that has not yet materialized is the collapse of the dollar, and there are many good reasons to believe that this will occur soon.
Morbo:The only prediction that has not yet materialized is the collapse of the dollar, and there are many good reasons to believe that this will occur soon.
What do you think are the most predominant factors that will cause this?
I have to go to bed now. I'll respond tomorrow.
Austroglide:What do you think are the most predominant factors that will cause this?
You don't need me to tell you this. There are many article on this site which put forward very strong reasons and I have little doubt you are aware of them. It feels like you are quizzing me to test my knowledge and I am not going to indulge you and waste my time typing them out.
Ron Paul reaches the same conclusions on many of the issues dealt with by that article in this speech:
http://www.house.gov/paul/congrec/congrec2006/cr021506.htm
Austroglide: Of course, in reality, the island economy would in no way collapse, Indeed, the standard of living for each Asian would immediately increase dramatically if they were to boot the American from the island.]
You are right on spot here, nothing would collapse for any asian :-)
The argument that only dollars buy oil is useless. At the moment dollars buy oil because the US can, backed by their military power, force it. But looking at Iran you can see that this is already shifting. Once the stretch of the US forces become unbearable, in monetary terms, you will see those "unconditional" allies flee the ship and sell their oil for whatever it can be sold for.
In the begining there was nothing, and it exploded.
Terry Pratchett (on the big bang theory)
Much to Morbo's dismay, Iran has recently bought a LOT of gold to use as reserves.
If you find something evil that wobbles, push it. - Gary North
Morbo:It feels like you are quizzing me to test my knowledge and I am not going to indulge you and waste my time typing them out.
Ding, ding!! Anyone willing to praise articles like the one you praise and link to above usually - and you prove yourself be among them - have little clue what they are talking about and will believe all kinds of drivel. That article, while containing some truths, is rife with fantastic assertions and all but completely void of evidence for them. It's quite ridiculous, actually.
nhaag:At the moment dollars buy oil because the US can, backed by their military power, force it
So the threat of military force is the only thing that stands in the way of the world abandoning the dollar? What if the world is simply ignorant that it would actually be better off without the dollar? It's a Keynsian world...maybe most of the decisionmakers around the globe are blinded to the problems with the dollar because they are Keynsians and think our economy is sound.
liberty student:Much to Morbo's dismay, Iran has recently bought a LOT of gold to use as reserves.
Sorry, I don't follow. You mean it signals a lack of intention to move to the Euro? To me, it seems if anything that they are preparing for a move to an international gold standard. But I am only guessing at this because I haven't been following all of this closely.
No, Morbo isn't a big fan of gold. He thinks people overvalue it. Just a dumb yellow rock.
Ah.
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