Is the World Decoupling from the US?

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Is the World Decoupling from the US?

From Peter Schiff's latest article, Don't Be Fooled by Inflation:

It is important to point out that despite an impressive rally, U.S. stocks have substantially underperformed foreign stocks. In the past two months, while the Dow Jones has risen 30%, the Hang Seng and the German DAX have risen by over 50% in U.S. dollars. Commodity prices are also rising, with oil hitting a five-month high. And gold is shining as well, with the HUI index of gold stocks up 30% during the past two months, and 2/3 of those gains occurring in the past month. If this rally really were about improving economic fundamentals, gold stocks would not be among the leaders. Further, during those two months, the U.S. dollar index fell by 7%, with commodity-sensitive currencies such as the Australian and New Zealand dollars surging 20%.

To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off – once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result.
 

I see visions of Icelandic Krona dancing in my head.  At least during the Great Depression, prices for consumer goods fell.  This time around we should be so lucky, considering that most of our goods are imported and our resources depleted.  Granted, we can do away with a lot of this "stuff" and other junk we certainly don't need, and probably be better off as a result. 

With that said, recent trends show rising oil prices, rising interest rates, and a weakening dollar.  The fundamentals are pointing to price controls, food and energy shortages, blackouts, exchange controls, and government confiscation of wealth and private property for the sake of national security.  Will they still be talking about "green shoots" then?

 

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Re: Is the World Decoupling from the US?
mikek31 wrote:

Granted, we can do away with a lot of this "stuff" and other junk we certainly don't need, and probably be better off as a result. 

Charles Hugh Smith expressed a similar sentiment in his excellent blog entry today: http://www.oftwominds.com/blogmay09/consumerist-gods-fail05-09.html

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Re: Is the World Decoupling from the US?

 If they're not, they will.

 If they won't, they should.

 If they can't, they would!

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Re: Is the World Decoupling from the US?

I think these "green shoots" have been a fallacy created to induce a rally in the stock markets. Fundamentals never got better, just the crafting of lies about them did. Sooner or later I see it catching up with them, but again, I'm not a person of capacity to make those judgements.

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Re: Is the World Decoupling from the US?

Schiff has made some bad predictions about the economy just before the crisis. See: http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html 
So don't buy in to his warnings just yet.

In all developed countries the same mistake has been made: overinvestment in real estate, mostly with borrowed money. At least Europe is heading the same way, and that's a lot of world not to decouple from. Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don't think many Chinese can afford the American dream at American prices. I don't believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports. Before some serious changes have been made in the Chinese economy, they too will see a recession.

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Re: Is the World Decoupling from the US?

Kudlow starts out with an economic party, then enters the party pooper,

http://www.europac.net/Schiff-CNBC-5-4-09_lg.asp

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Re: Is the World Decoupling from the US?

I always love kudlows rosy predictions.

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Re: Is the World Decoupling from the US?

Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don't think many Chinese can afford the American dream at American prices. I don't believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports.

Of course there are some initial losers among those Asians who profit from the export arrangement.  However, those profits only came at the expense of greater losses borne by the entire Asian population.  They own over $1 trillion of our debt, and they now know we're not good for it.  All they have to do is redirect their resources to domestic consumption, much like we retooled our production after World War II.  To think that they will somehow continue to throw good money after bad because their own citizens cannot afford their own production, is simply the most ludicrous thought I've ever heard.

Warren Buffet said in 2006 that "the rest of the world owns $3 trillion more of us than we own of them."  It only makes sense that the faster Bernanke prints money, the quicker our creditors will want to get out of US financial assets.  This can only mean one thing: rising interest rates, rising raw materials prices, and a weakening dollar.

So domestically we have a double-whammy.  The price of housing - our greatest asset - continues to fall while the price of oil, food, and the cost of borrowing continue to rise.  These are real losses that can't just be papered over.  And the more they do it, the more they distort, misallocate, and further undermine the economy, making the inevitable correction a crash.

I mean, come on, Kudlow and co. talking about "new home builders", when we have over 19 million homes either unoccupied, for sale, or in foreclosure?  This is their answer to recovery?  To correct all of the misallocation of resources and malinvestments with even more misallocation and malinvestments?  Insanity!

I'm just getting really frustrated and my patience is wearing thin.  I'm getting sick of these guys from investment firms begging people to buy stock with their rosy economic indicators.  They're either downright ignorant or intentionally misleading people.  Though Schiff has a similar agenda investing abroad, at least he understands the big picture and the inevitable consequences that will result.  Chris Martenson has an even longer-term view, and I have no doubt we'll be hearing from these guys a lot more in the near future.  Good for us. 

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Re: Is the World Decoupling from the US?
woupiestek wrote:

Schiff has made some bad predictions about the economy just before the crisis. See: http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html 
So don't buy in to his warnings just yet.

In all developed countries the same mistake has been made: overinvestment in real estate, mostly with borrowed money. At least Europe is heading the same way, and that's a lot of world not to decouple from. Also, I sense there is something wrong with the idea that China can just use the products they wanted to sell to us for their own. I don't think many Chinese can afford the American dream at American prices. I don't believe that Chinese industries can afford to sell their products in China for lower prices. So somewhere, some people are loosing a massive amount of income due to falling exports. Before some serious changes have been made in the Chinese economy, they too will see a recession.

 

I just wanted to let you know Schiff in all honesty got majority of his predictions right. The only way he could feasibly be counted as wrong is if the crisis had ended in December 08. The game isn't over yet. In-fact many aspects of his predictions are starting to come to light now (the rise in bonds, drop in dollar....decoupling) let alone the EXTREME rises in all the other stock markets comparatively to the DOW, and the dollar.

This was his response letter when MISH's letter came out.

http://www.europac.net/externalframeset.asp?id=15312&type=schiff 

This post is mearly to inform, Hopefully the tone doesn't come out wrong...

Mike

 

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Re: Is the World Decoupling from the US?

I also wanted to add I don't know Schiff personally or have an account there. I just remembered when MISH's report came out so I did a bit of research on my own, and read his books to see his forcast in more detail......

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Re: Is the World Decoupling from the US?

I was never sure why Mish discredited Schiff.  I enjoy Mish's blog, but it's bad taste to point out a losing client of Schiff's.  What Schiff didn't expect last year was the flight to safety in the dollar.  But these are short-term market movements that are difficult to predict.  That's why Jim Rogers is always saying, "I'm the world's worst market timer."  For instance, Schiff always maintained that the housing bubble would burst, though he wasn't sure how and when it would happen.  He speculated that rising interest rates would trigger this, whereas what actually happened is debt simply became unserviceable.  So someone like Mish can come along and say "he was wrong," but this is completely missing the point.  Schiff's focus is on long-term outcomes.  He doesn't think of the market in narrow, "day-trader" terms.  And nothing upsets him more than losing a client to market fluctuations.

With that said, there's only ONE guy that I'm aware of that was able to put Schiff in his place, and that was Steve Keen in this interview (parts 1 and 2).  If you don't know who Keen is, you should.

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Re: Is the World Decoupling from the US?
mikek31 wrote:

I was never sure why Mish discredited Schiff.  I enjoy Mish's blog, but it's bad taste to point out a losing client of Schiff's.  What Schiff didn't expect last year was the flight to safety in the dollar.  But these are short-term market movements that are difficult to predict.  That's why Jim Rogers is always saying, "I'm the world's worst market timer."  For instance, Schiff always maintained that the housing bubble would burst, though he wasn't sure how and when it would happen.  He speculated that rising interest rates would trigger this, whereas what actually happened is debt simply became unserviceable.  So someone like Mish can come along and say "he was wrong," but this is completely missing the point.  Schiff's focus is on long-term outcomes.  He doesn't think of the market in narrow, "day-trader" terms.  And nothing upsets him more than losing a client to market fluctuations.

With that said, there's only ONE guy that I'm aware of that was able to put Schiff in his place, and that was Steve Keen in this interview (parts 1 and 2).  If you don't know who Keen is, you should.

I completely agree. I never ment he got 100% of all his forecasts and speculations correct, but he sure did a good job so far.

I have seen those interviews with Steven Keen; they are really good. Rather than Schiff being put in his place, it felt more like mutual correction (if that makes any sense). In other words, they both completely agreed on the general issue, and never really strayed far apart, Keen just corrected Schiff on specifics. It is a great interview.

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Re: Is the World Decoupling from the US?

Is the World Decoupling from the US?

The answer is absolutely yes - it is happening.  Stop by Chris Kresser's thread "China announces Yuan can now be used for international trade."

Chris wrote:

It's official: The government in Beijing has announced that the Yuan can now be used in international trade.

This is only the next small step in Beijing's "policy of small steps." Already the Chinese government has ramped down its purchases of US Treasury paper, forcing the Federal Reserve to step in as the buyer of last resort. The IOU, with which the US has inundated the world, is now becoming the I-owe-me - which is not quite as impressive to those who are considering selling products to the US on credit.

The days of the dollar hegemony ended at the recent G20 meeting. Our MSM told us that China suggested that a basket of currencies could be used to move away from the dollar.  The odd thing, not analyzed by the MSM, was that the "basket" of reserve currencies included the the US dollar, the European euro, the British pound, and the Japanese yen - they did not include their own currency (yuan).  They are becoming a stronger player at the G20 meetings while simultaneous circumventing that group by offering the yuan as a new reserve currency.     

Asia Times:

Actually, maintaining the customary Chinese discretion, Zhou never mentioned the state of the US dollar in his article, nor did he even imply that the yuan should be included in the super-sovereign currency he proposed. Yet it was clear to all that at a crucial moment - with world leaders about to meet in London to devise a way to defuse the most severe fiscal crisis since the Great Depression - that a China which had bided its time, even though it had the third-largest economy on the planet, was now showing its strong hand.

All signs are that Washington will be unable to restore the status quo ante after the present "great recession" has finally given way to recovery. In the coming years, its leaders will have to face reality and concede, however reluctantly, that the economic tectonic plates are shifting - and that it is losing financial power to the thriving regions of the Earth, the foremost of which is China.

Larry

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Re: Is the World Decoupling from the US?

 Well I've looked at those interviews with Keen -- by the way, I'm being critical of Schiff because I know Keen's theories -- and I don't see Keen agreeing with Schiff. I see Keen being to polite to attack Schiff, or being interrupted before he can. As Keen said: almost all the OECD countries have the same problem. Those form a large part of the world, that isn't likely to decouple from the US anytime soon. And I think that readjusting to internal consumption will take a lot of time for China, so they will hang on to the US for a while too. But I guess thinking the rest of the world will just go on without you, leave you behind and so on, makes you Americans feel very special. I should not be surprised that I hurt some of yours feelings, because I telling you you're not.

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Re: Is the World Decoupling from the US?
woupiestek wrote:

 Well I've looked at those interviews with Keen -- by the way, I'm being critical of Schiff because I know Keen's theories -- and I don't see Keen agreeing with Schiff. I see Keen being to polite to attack Schiff, or being interrupted before he can. As Keen said: almost all the OECD countries have the same problem. Those form a large part of the world, that isn't likely to decouple from the US anytime soon. And I think that readjusting to internal consumption will take a lot of time for China, so they will hang on to the US for a while too. But I guess thinking the rest of the world will just go on without you, leave you behind and so on, makes you Americans feel very special. I should not be surprised that I hurt some of yours feelings, because I telling you you're not.

lol, Ok, I'm gonna keep this as quick as I can.

'But I guess thinking the rest of the world will just go on without you, leave you behind and so on, makes you Americans feel very special.'

I'm not really sure how thinking the globe is going to decouple and go on without 'us Americans' makes us feel 'special'. One would think that the view of no country leaving us behind would make 'us Americans' feel special.

Frankly, everyone is completely entitled to their opinions. No ones feelings were hurt, but I don't see a reason for jumping to these types of comments. Lets stick to facts.

Like why and what brought you to believe that China will take a long time to adjust? What is your view of a long time? Would you count statistics like China purchasing more cars than the USA for a few months running now to be relevant, or do you believe that for something like that the trend has to be longer? How about the major moves they have been making with their currency, or their reserves, or even that they have cut a MASSIVE percentage of bond purchases as well. What about the resources they have been buying up? Do you not see these as steps that need to be taken to eventually be self sufficient?

Personally I can see Europe sticking with us a bit longer than Asia.

I am not trying to start an argument. I just feel that there is more to this picture than some opinions, and 'hurt feelings'. We are always learning, that is why we are here, to help eachother out.

Mike

 

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Re: Is the World Decoupling from the US?

I'd feel a lot more special if Asia simply stopped financing our debt.  All they're doing is propping up this service/consumptive/phony economy of ours.  Besides, most of the stuff we import from them is affordable junk we don't need any more of.  We have too much stuff as it is.  Let them enjoy the fruits of their (slave) labor for once.  The only thing we need to import is a healthy dose of the East's philosophical lessons, and stop thinking that you can consume your way to happiness.

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