The International liquidity crisis will soon create a mess too big for anyone to easily recover from.
When our Strategic Oil Reserve System wants more oil we merely grind up some trees and rags to make paper to print lots of greenbacks, so we can trade a ton of them to the Arabs for a tanker full of oil! Surely someone gets burned in that deal - no wonder they hate us!
Both oil and gold are traded in the US dollar, so everyone needs to keep some on hand but gold and oil are essentially available "free" to us, so long as we have green ink to print with. The problem is that all Countries have now caught on to our "Ponsi like scheme" so everyone is burning their neighbor by printing fresh cash as more goods are needed!
Cash has become such a free commodity that investors are willing to accept stupidly low return rates for very risky paper assets, as if in a self destruct mode!
China is clearly in a bubble. Shanghai stocks are up 250% since 2005 - and 35% this year alone. Still, investors are so eager to get in at these prices that they take up Chinese bank IPOs at twice the PE ratios of banks in developed countries. And what do they actually get when they buy a share? No one knows what a bank chartered and regulated by communists is actually worth!
China is expected to accumulate more than half a trillion dollars in foreign exchange reserves - twice as much as last year. How does it get that money? It prints up currency of its own to buy the foreign currency from businessmen and investors - who are selling Chinese made goods (including stock certificates) to foreigners at a breakneck pace.
Investors not only take up but scramble to buy Hugo Chavez's paper Venezuelan bonds! They do so at less than 7% yieldbarely 200 basis points more than the sovereign debt of the United States of America.
Officially, the Venezuelan Bolivar is quoted at 2,150 to the dollar. On the black market it trades for 3,750 to one. And it's sinking fast - down 15% so far this year, so where is their justification?
Even long-dated dollar-denominated bonds issued by Iraq, trade at less than 10% yield.
From its recent high of 83.10 on April 9th, the US Dollar Index has fallen to 81.53, a 1.9% decline. That may not sound like much, but it works out to a 32.7% decline on an annualized basis. Given that one presently earns only about 5% per annum in interest income on their dollars, the loss in purchasing power is very obvious. You thus need to find assets that will rise at a 32% annual rate to keep up with the dollars rate of fall!
If our interest rates drop by 1/3 we would be OK but then who would finance our National Debt when Hugo pays so much more! The whole International financial mess must fall like dominos some time very soon, as all other Nations in the past financed with fiat money have failed, without exception!
Fred Peschel is a graduate Mechanical Engineer with 40 years experience in custom electronic design and manufacture in the high voltage test equipment area. Upon retirement he started studying self healing and in the last 10 years has become a world class expert on colloidal silver manufacture and applications. His ColloidalSilverResearch.com is the only manufacturer of commercial ionic colloidal silver generators, with extensive installations world wide. He is an avid student of finance and medicine.