Over the last few weeks we have seen the continued decline of the US dollar against the Euro, with the speed of the decline gaining momentum. Along with the collapsing US dollar, America?s financial institutions are in fighting for the very survival, as the economy slides into recession.
Why has this economic crisis developed? What will be the outcome to the collapse of the US dollar?
For years the USA and the other Anglo-Saxon countries have lived beyond their means, relying on borrowing money from overseas creditors to finance their domestic consummation and military adventures abroad. Domestic saving in the Anglo-Saxon nations have declined to almost zero, as a greater percentage of income is absorbed into serving debt to international bankers. To maintain growth in the US economy, the Federal Reserve has continued to expand the money supply (print money) to allow the banking system to lend funds to stimulate domestic spending. Under normal circumstances, this would be inflationary, but as the USA has exported these ?created? dollars to finance its imports, the inflationary effect on the USA has been minimal to date. This is about to change.
The ?created exported dollars? have provided the capital to finance the rapid economic growth of the Asian economies, especially China and India. However, as the supply of dollars outside the US has exceeded the demand of the Asian economies to absorb them, they have lent their surplus dollars back to the Anglo-Saxon countries. This has provided the capital to the America and British banks to lend for domestic funding in housing, automobiles and consumer spending. Each year per capita debt to our international creditors has grown, and the cost of servicing this debt likewise has grown. To date, this has not been a problem as the Anglo-Saxon nations have been able to borrow readily available dollars to service their ever increasing debts.
The current problem has developed that while accumulative debt has grown, along with the costs of servicing this debt; real incomes have not grown. In many cases real incomes have declined. Borrowers have not been able to repay their loans, or the cost of serving their loans, with declining incomes. Financial institutions that lent easy money to borrowers against inflated asset values which are now unable to recover the money they have lent. Once the borrowers have not been able to service their debts, they have defaulted. This in turn has led to the financial institutions trying to recover their loans from a depressed asset market, which often is now not possible, leading to them defaulting on their loans to their overseas creditors.
The problem has been made worse because many of the financial institutions used the loans that they had lent to consumers to borrow against as collateral to speculate in futures, currency speculation, derivatives, hedging, and other instruments created by financiers to make large profits at the expense of the borrower. The problem that has now emerged is that with collapsing asset values, these financial institutions? have become technically insolvent. To try and stop them collapsing, the Federal Reserve has printed money to lend to the banks to continue their lending to consumers, in an desperate effort to prevent the US economy going into a free fall with collapsing banks, businesses and bankrupt consumers.
Meanwhile international creditors have been become extremely nervous, worried about the investments in the USA, and the ability to recover their money with the falling dollar and collapsing financial institutions. They have desperately been looking at alternative areas to invest their surplus depreciating dollars before they become worthless. They have been unwilling to continue investing in the US, preferring to purchase gold and commodities such as oil, wheat and various metals. They are increasingly purchasing Euros as a reserve currency, in place of the US dollar, which is why we see such rapid gains in the value of the Euro.
This past week we have seen the economic collapse of the US dollar and America gain momentum. The average citizen still has not fully comprehended what the impact of the collapsing dollar will have. However very quickly prices of essential commodities will rise, including fuel, transportation, health care, housing and other basics necessities to maintain life. Yet incomes will decline as many businesses fail without access to bank credit. Additional funds injected into the collapsing economy by the Federal Reserve will only add to erosion in the value of the dollar. We only need to look at Zimbabwe today to imagine what the outcome will be. People will starve ? poverty and disease will become widespread ? law and order will break down.
Very soon Americans will discover no-one will accept US dollars as international tender. They will become worthless. Those countries with their currencies tied to the US dollar such as China, will need to switch their reserves to the Euro, but will loose heavily on their dollar investments. Meanwhile, their will be capital flight to the Eurozone, stimulating economic growth in Europe. The EU will become the dominant global economic power, followed by creating a new global trading system based on the Euro.
As I have written for several years now, the collapse of the Anglo-Saxon nations is a direct result of breaking economic laws provided in the Bible for our nations to manage their economies and the social services to our people. It is by rejecting these laws that has led to the mess we are in today. We are now leading up to a time of great sorrows and hardship for the Anglo-Saxon people. Many will die. Many will become slaves to work as cheap labour in other nations.
We are now entering the time when there will be no more tricks to pull of the Fed?s bag, and we can solve our problems by creating money. The economic collapse of the Anglo-Saxon nations could be sudden and have disastrous consequences upon our people. It will be the precursor for the time described in the Bible of great tribulation.
Bruce Porteous 15 March, 2008 bruceport@xtra.co.nz
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