RATING: 4/10
Peter Schiff who predicted the 2008 housing bubble lays out his predictions for the decline of the American Economy including the coming collapse of the U.S. Dollar and places to invest your money. His investments might not be for everyone, but this book is worth a read if you want to better understand the fragility of our economy.
Notes:
Reserve currency (Bretton Woods) made U.S. Dollar the currency used by other governments & institutions to settle their foreign exchange accounts and to transct trade in commodities such as Gold & Oil.
-Thus the U.S. was allowed to run trade deficits (at the time U.S. was leading exporter & manufacturer)
-aka a Playboy inherits his parents good work & money then proceeds to blow it.
The shift from manufacturing to services caused growing trade deficits
Japan “Higher quality is better” compared to the U.S. “Bigger is Better”
We are simply not exporting enough information technology to pay for the real goods that we import.
The resulting trade deficit proves that our so-called information/service economy is in reality a sham.
High taxes, excessive regulation, and trade union demands drove many manufactures out of business —turned high paying jobs to low paying & resulted in importing stuff we could no longer produce at home.
The Asians are doing all the work & we are eating all the food.
If China let’s U.S. Dollar collapse —temporarily setback in Chinese economy, but overall their scarce resources will be free to satisfy their own needs and desires & their standard of living will rise.
China’s capacity to consumer is much greater than ours and already in place
-A sells apples to B, and B sells oranges to A.
-A’s apples gets wiped out by flood & sets up IOU agreement with B + 10% interest in supply of apples next season.
-Next season another disaster hits, A gives B more IOUs
-Next season another disaster hits A. A keeps getting free oranges and decides to build a Golf Course (service economy) & keeps giving more IOUs to B.
-B gives A’s IOUs to other farmers for goods and services.
-The community learns A can’t supply apples anymore & his apples are worthless.
Trade deficits occur when countries import more than they export (2009 was at 65bil a mo)
When measuring productivity, it’s the production of consumer goods, not of capital goods that count; the sole purpose of the latter being merely to facilitate the production of the former.
-Ex. Personal computers = personal goods.
– Pc’s purchased by companies = capital goods.
When you are broke, the only antidote is to save your money and be more productive.
Fiat Money = money in name only
In economics, inflation refers to the expansion of the amount of dollars in circulation called the money supply.
-the more that is printed, the less that it is worth like baseball cards – the more that are in circulation, the less they are worth.
CPI, PPI, PCE = all unreliable measures of inflation. CPI (consumer price index) excludes food & energy in its measurement.
It is the natural tendency of market economies to lower prices that makes them more successful.
-Profits will be made (in retailing) with fewer items on fewer shelves selling at higher prices.
Investors will care less about the default risk rather than the inflation risk —getting back money less that it was originally worth.
I’d better spend that dollar today because it’s going to buy less tomorrow.
By itself, the share price confers no real information about the underlying value of the stock.
Price is meaningful; only when related to other factors, such as earnings, sales, book value, and shares outstanding.
Common stock is simply corporate ownership broken down into units that can be bought and sold.
When companies become publicly traded, through underwriting –the shares are traded on stock exchanges & acquire market value*
*Not just based on a portion of companies equity, but future profits as well.
Capital debt aka investment debt = business loan debt; society benefits as a whole.
Consumer debt = individual debt; savers get interest, but no benefit to society.
Borrowing to build factories is not the economic equivalent of borrowing to buy a T.V.
Borrowing to produce is the way poor countries become rich (assuming there is a business w/ a profit system to be pumped money into)
Borrowing to consume is the way rich countries become poor
We are literally transferring the wealth of our nation abroad purely to finance our current consumption
Over 70% of GDP represents consumption
Government collects taxes –> social security & medical –> taken out by Government replaced with bonds –> then government spends money on current benefits to fund Iraq War, farm subsidies, etc.
Social Security is really one big IOU
-Like a ponzi scheme –using money put in by new investors to pay off the old ones, and as long as there are more coming in than going out it works –eventually all pyramid schemes unravel.
-The first social security beneficiary, Ida M. Fuller over 5 years put in $22.50 in taxes & got out $20,000 —it pays to be first, meaning future generations are financing the Ida M. Fullers
China funds about 50% of our borrowing
When America was the low cost producer with high quality goods — it also had the highest wages in the world
-low capital costs and the absence of high taxation & regulation
The initial impact of a dollar collapse will be most disruptive in Asia, while Europe will be affected to a much lesser extent. As a result, in the short run, non-Asian markets might do better, but in the long run, Asia has the most to gain from the Dollar’s collapse.
Best conservative play is commodities, natural resources, and raw materials