Why the Meltdown Should Have Surprised No One - Peter Schiff - Mises Institute

Peter Schiff on the financial meltdown at Mises Institute

Sentences to ponder:

Back then, we borrowed money to make investments, to build infrastructure, to build factories, to build farms, to build a productive economy. We invested the money; we didn't just spend it on stuff.
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And we became the world's wealthiest economy because we borrowed to produce. What we've done recently is we've borrowed to consume. We didn't produce anything. ... So how can we possibly pay the money back? We didn't acquire any income-producing assets to pay the money back.

And when the world finally lets the dollar collapse — and they will — our purchasing power isn't going to vanish, it's just going to be redistributed. Other currencies are going to rise. And people in other countries, people that are working in factories right now in China, that are producing products and just shipping them abroad and just kind of waving good-bye, all of a sudden, they'll be able to afford them.

The Chinese will be able to turn in their bicycles and buy automobiles because steel will be cheaper, because cars will be cheaper, because the value of their wages will rise because their currency will gain purchasing power.
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It's the Americans who are going to be buying the bicycles. Because, all of a sudden, cars will be too expensive for us, gasoline will be too expensive for us, because we'll be bidding with currency of much less value. And that's what's going to happen. And the world is not going to suffer because we don't buy their stuff. They're going to benefit because now there's going to be more stuff for them.

Right now, because the world lends us so much money, there's a capital shortage. Wouldn't the world be better off investing their savings productively in their own countries, rather than just giving their savings to us? Wouldn't they be better off enjoying the fruits of their own labor, rather than laboring while we enjoy the fruits? It's obvious. And it's going to happen.

Prelude to divorce?

From the divorce counselor, Niall Ferguson:

Wake Up Washington! China Is Already Dumping the Dollar, Niall Ferguson Says

Posted Oct 20, 2009 11:52am EDT by Aaron Task in Newsmakers, Commodities

Just as U.S. policymakers are too sanguine about China's military power, Harvard Professor Niall Ferguson says Washington D.C. is too complacent about China's ability to wean itself off the dollar. With about 1.7 trillion of dollar-denominated assets (mainly Treasuries) in its foreign currency reserves, conventional wisdom goes something like this: If China were to diversify away from the dollar or merely allow the renminbi to float, much less dump its greenbacks wholesale, they would be shooting themselves in the proverbial foot. That's both as investors and because further dollar weakness would put a damper on their biggest export market. (A weaker dollar makes foreign goods more expensive for Americans, meaning Chinese imports would become less "cheap.")
This view is "slightly naive," according to Ferguson, author of The Ascent of Money.
"The idea they don't have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency reassures many people in Washington ‘we can relax'," he says. "An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own," most notably the commodity assets they have been buying all over the world.
China's "current strategy is to diversify out of dollars and into commodities," Ferguson says. Furthermore, China's recent pact with Brazil to conduct trade in their local currencies is a "sign of the times."
Perhaps most importantly, China's massive stimulus program is helping to generate internal consumption in the People's Republic, meaning local manufacturers are less dependent on exports. Because of the "rapid growth" of Chinese domestic consumption, Ferguson predicts China's international trade surplus could be gone by next year.
"People in Washington rather assume because the U.S. consumer was so dominant there really isn't a substitute," Ferguson says. But China's trade surplus stood at $12.9 billion in September, down about 56% from a year earlier, according to MarketWatch.com.
From 1998-2007, China engaged in a form of vendor financing, lending money to the U.S. so the U.S. would buy Chinese goods, Ferguson explains. "I think that model has basically broken. They know it and have a new one in which we play a much less important role."

Last Days of Lehman Brothers

BBC release its version of the last days of Lehman brothers. More versions are available all over the world, as we approaching the anniversary of the collapse. One year already? It is only one year?