Dollar Bubble Bursts
China cuts off USA's line of credit.
Treasury yields skyrocket.
The Greater Depression™ has not even begun yet, but it will -- soon.
Don't say you weren't warned about the inevitable bursting of the dollar bubble. I've been shouting it from the rooftops for a couple of years now: The value of the U.S. dollar has been based on nothing more than smoke and mirrors. If you thought the bursting of the tech bubble was bad, if you lost a bundle in the real estate bubble, well, let me just tell you that you ain't seen shit.
The mainstream press prattles on about stock prices, shiny happy banks, and all that hoo-hah, but even they can't ignore the fact that nobody wants our debt (they just bury it deep in the story).
The $14 billion Treasury bond auction met below-average demand from investors, who bid aggressively to force the government to pay a higher yield as it pushed ahead with plans to help finance its burgeoning budget deficit with more longer-term debt.
This is a teensy-tinesy auction. Asking the world to buy $14 billion in U.S. debt should be like expecting Warren Buffett to pick up the check if you dined together at Applebee's. Why did it go so badly? Because the Chinese have all but stopped buying Treasuries, as I have predicted they would for years, sometimes to dismissive tut-tutting by "real" economists and hoity-toity scholars. They would say, "Oh, but the Chinese need us to keep buying their stuff. They'll never cut us off!"
Yeah, well, the Chinese have apparently figured out the ease with which they can inspire their own people to buy their stuff. Since they outnumber us by a factor of four, they really don't need our fat, lazy, stupid asses to borrow their money and buy their crap. Took 'em long enough.
Another argument made by the scholars was that the Chinese had nowhere else to put their surplus wealth. When I pointed out that they would probably buy things like gold, I was scorned and called a "gold bug," but -- as usual -- I was right.
The Chinese have gone even further than I predicted. They seem to be slowly transforming the yuan into a hard currency by making deals to swap currency with some of their other trading partners. (It is ironic in a tragic sort of way that the linked-to Time article calls this a "small" step away from the dollar. It's a huge step away from the dollar when you think about the bigger picture.) Myopia and arrogance have lulled Americans into thinking that we're the only game in town when it comes to buying Chinese stuff. Forget huge countries like Brazil and Indonesia. They don't matter. They're "developing" or some such nonsense. Our Chinese bankers love us. They need us. They love our dollar. They need our dollar... or maybe not so much.
You might be thinking to yourself, "So what? What do I care if a bunch of bond traders nuke the buck?"
That is a completely understandable sentiment, a bit small-minded and selfish, but understandable. Think about the bursting of the other bubbles -- real estate and tech. The net effect was that you got a lot poorer. What the bursting of the dollar bubble means for you, if you are an American whose assets and paycheck are denominated in dollars, is that you are about to get a whole hell of a lot poorer. A weak dollar means that the price of everything will rise to unbelievable levels. It means hunger. Yeah, I just said that. It means hunger because farmers won't be able to afford to grow food that they can't sell, and food importers... well, it's pretty obvious what's going to happen to the price of mangoes if the dollar is not seen as a reliable means of trade or as a store of value.
In the next few weeks -- months at most -- we are going to see a total and complete meltdown in the value of the dollar. This is going to unravel quickly as central bankers and big financial players the world over take China's cue. Nobody wants to be left holding the bag on this one, and the global dollar supply is so enormous that utter havoc is practically guaranteed. If you thought the recession was bad now, just wait until everybody is trying to dump the countless trillions of dollars they've stashed -- and nobody is willing to take those dollars. $15/gallon gas, here we come!
Sorry if that bums you out, but I kick truth even if it makes me unpopular.
Advice? Don't be a sucker. Spend your dollars while they're still worth something (i.e., buy gold, silver, bicycles, tools...). Do it this instant. You have been warned.
Peace.
