"How Long Can They Keep The Charade Going?"

My dear friend, Mike, sent me an e-mail yesterday in response to the latest post, "Dollar Declining Amid Mix Of Bad Long Term Trends & Uncontrollable Events."

He asked a very salient and, perhaps, rather obvious question about the timing of a dollar collapse.

I thought it was worthwhile to post Mike's question in full, along with my response.

As always, your responses are welcome in the comments section.


Sean,

Good stuff. Question; what sort of timetable do you THINK we are looking at in terms of an 'apocalyptic' event concerning the dollar and/or the economy? I am just curious because, truth be told, I am surprised we've made it this far. But with the media complicity, and corruption on all levels of the market and government, I wonder how long they can keep the charade going.

- Mike


Honestly, Mike, I have no idea. Like you, I am simply amazed that Atlas is still managing to hold up the world. This whole thing should have come tumbling down already.

The key is this; how much more debt will China buy, and how much longer will they buy it? The international trade system is so reliant on the dollar, and almost all trade debts are settled in dollars. But, really, what good are dollars to the Chinese? They don't use them in China.

As long as the Chinese continue exporting to the US, the only alternative they have is to start buying US assets, such as land, golf courses, resorts and huge commercial properties — the sort of thing that Japan was doing in the 1980s.

Actually, I'm surprised they haven't been doing more of this. Perhaps they feel, or have been told, that the US will prevent at least some of these actions.

This is what Chris Martenson reported this afternoon:

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months. Note that the earthquake struck on March 11, so there really are only a couple of weeks of "earthquake impact" in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory.

Japan has been a net exporter of goods and debt for decades. That is all changing now. The flow of funds will be going in reverse, and that will have huge implications for the US. Simply put, they will no longer be buying our debt. That's a game changer.

The US is now left with the oil exporting nations, who get paid in dollars and convert them into Treasuries. Aside from that, the only other alternative is to print. No one in their right mind would buy Treasuries at these pathetically low yields, combined with the fact that the US is so interminably in debt.

Many international observers now seem to recognize that the US has no choice but to print, and to thereby continue devaluing the dollar even further. It's a death spiral.

China's purchase of Portuguese, Australian and New Zealand debt will send a signal to other nations that they are losing confidence in the dollar, and in the reckless US fiscal policy in particular. Confidence is everything in markets. Any remaining Treasury debt buyers are sure to follow them to the exit.

As the Bibe says, "No one knows the day or the hour." However, I think there will be clear signs in advance. I don't know if there will a "boom" moment, or just a slow ride to the bottom, like a bowling ball steadily rolling down a flight of stairs.

One thing I do know is that we will be witnesses to an epic historical event.

- Sean