Peter Schiff: The Dollar is Going To Collapse
I was talking to friends last week and they mentioned how their retirement accounts were taking huge hits in this market. I then said that maybe we all need to do like the Somali’s and switch from paper money into gold. I mean, literally start wearing gold jewellry on your arms like those Somali’s you see in Eastleigh. You know why? because gold is quantifiable and it has real valuable while money (well…who knows anymore?).
When it comes to trying to figure out where this financial crisis is headed, I like to listen to people who predicted it before anyone did. I’ve featured Nouriel Roubini here, but there’s another guy who predicted this crisis head on almost 2 years ago and his name is Peter Schiff. He is now predicting that the dollar is going to collapse, but he says that this crisis will be limited to America. The rest of the world, specifically, the countries that produce minerals and commodities, are going to experience an economic boom.
However, when he says the “rest of the world”, he is not talking about Africa. He is talking about Asia and parts of Latin America. Although I think that countries like South Africa (that have gold deposits) are going to really make money as more and more people exchange their “funny” money for a real, quantifiable product like gold.
When I heard Schiff explain what the problem with the U.S. economy was, I couldn’t help but think that he was describing what is happening to the Kenyan economy today, albeit on a much smaller scale. Kenya has no minerals, they do not produce enough agricultural commodities for export like wheat or soybeans (which a country like Brazil produces) and they have no manufacturing base. What does this mean? It means that the economic growth you are seeing in Kenya is not sustainable because it was created by a phony economy where banks just lent out money to people to buy houses, cars, tv’s, etc, etc…
The brokers at the NSE are not producers and they need to stop telling people to use their salaries to just buy all these stocks aimlessly. Traditionally, you talk about two “economies” as existing in a country: the “real economy” and the “financial economy”. The real economy is comprised of things that concern ordinary people in their daily lives, or issues that are often referred to as “Main Street” issues. The financial economy is comprised of the business of banks and other investors. The traditional role of the financial industry was to provide capital for new ventures and new investments in the real economy. Capitalists would hence invest money in things that they believed would be desired by people in the real economy in the future, and would be duly rewarded if that turned out to be true. Capitalists were, in essence, rewarded for betting on the right horse.
However, in Kenya because the buying power of the population is so limited, they must get to a point where they start can producing goods (for export) to larger economies where the people have higher expendable incomes. They can’t just keep selling in Kenya or even just to other neighboring African countries. It’s not going to work.
Anyway, watch this video of Peter Schiff. The worst is yet to come.
On dollar’ direction, interest-rate theory suggests that it’ll see some correction. But will it collapse (and what is that anyway)? I doubt.
KE- sio na ubaya but where do you get your information on Kenya’s economy from? Nairobi-star?
1) devaluation/depreciation of the US$ over the next 2-3 years? Yes… it’s simple… the Fed/Treasury is pumping (supply) $1.5 Trillion thus allowing it to depreciate once demand for the US$ slows down. It’s supply & demand. Of course, all other stuff being pari passu.
2) Kenya. There is potential for growth. Not coz of ‘manufacturing’ but as a trans-shipment location. Others are Dubai (some oil income but mainly trading & now tourism) & Singapore.
Countries like Nigeria (among others) have ‘natural resources’ but the general populace is as poor as dirt vs Dubai or Singapore!
3) Europe will hurt more since the USA has a much stronger entrepreneurial culture. Over-regulation hurts. Read Schumpeter’s theory of Creative Destruction.
The Key to dollar’s future is locked in the People’s Bank of China in Beijing. Why do you think the US treats China like a vunarable baby. The trillion US debt held by China is enough to destroy the dollar if China floats the money in the world market. I know China would loose too but you know desperate communist Party times calls for desperate commie measures. The US must retain China as a strategic competitor to avert a doomsday.
KE,
On a different path, the more I learn from you,the more you fascinate me, seriously. This about your previous predictions of Kenya’s politics. Now that MUTULA KILONZO has changed NAIROBI forever, your pawn predictions are falling into place. Kiambu, LIMURU, THIKA and MACHAKOS will all be part of Nairobi Metro. You know that means the population of Kikuyus and Kamba in Nairobi will double if not tripple. There will be NO other tribal increase except the two. The balance of power in future conflicts like the PEV will tilt extremely.Not to mention the metro Parliamentary elections. I think incorporating THIKA and ATHI RIVER made sense. But KIAMBU, LIMURU and as far as deep Ukambani of MACHAKOS was all Political. What do you think?
MainaT:
I no longer know how to respond to some of your comments because I am coming to the conclusion that your knowledge base is just not that extensive, especially when you say things like: “On dollar’ direction, interest-rate theory suggests that it’ll see some correction” — what? I honestly don’t know what you are saying here and it leads me to believe that you are just missing a whole lot of other information about what’s happening.
CT:
I don’t know why you are so bullish about the port at Mombasa. First, they need to get rid of the corruption, then they need to upgrade and automate their equipment and then, they need to find a way to deal with the piracy around somalia, which is affecting the use of mombasa as a port of entry/exit. And having a port by itself won’t mean much, if the other aspects of your infrastructure are falling apart. Dubai has it all — good, efficient ports, good roads, good airports, etc, etc.
The other issue on the dollar that Schiff really stresses are the decision in 1972, by the u.s. to de-link itself from the gold standard. Prior to this, one could ascertain the real value of a dollar because it was linked to an ounce of gold. Today, nobody quite knows what a dollar is really worth. Do you?
Dee:
You are right about the chinese. they will soon get tired of propping up a valueless currency and that’s when the dollar will collapse.
Ke- Yes my knowledge is not extensive
So you know, interest theory says that money will always follow interest rates. Fed rate is zero which means holding dollars right now is a negative option. The reason the dollar won’t collapse? The US remains the largest market for China, India et al.
Kenya’s economy growth is not based on banking. Not by a long way.Infact the largest driver of its economic growth since 2002 has been agriculture. Holticulture (yes to Europe and US), and the usual cash crops.
KE
I must commend you on ECONOMY ..i like the natural simple comon sense. I do not like economic books they have so many ifs ..so their predictions will always FAIL and PASS..remember the waganga ..if it rains put on a red bead…if it does not put on Blue………..
Facts
We have no Minirals,we import agricultaral inputs,education ETC
We have NO skills to compete in the world
What do we sell ?
Agric raw materials were we are becoming less competetive,tourism(depending on peace and outsiders having money)
Conlusion
Our balance sheet will get worse
USA
Well i can only say USA will weather this times SINCE its got ONLY ONE THING IN ABUNDANCE
and that is her HR
@KE
Having commodities is not going to save an economy because even right now the prices of minerals are going down. Yes the will come up again but it shows just having minerals is not a guarantee of safety as far as a country economy is concerned.
The future is developing the service and trade sector. Kenya is moving in the right direction as far as improving infrastructure on roads, rails, ports, energy and communications. What will be the effect of this. Manufacturers will benefit as cost of production comes down. We shall develop new service industry in BPO which is already developing right now. Tourism will boom and soar even more. The lack of minerals has made and will continue to make as put more emphasis of the service and manufacturing sector.
You are wrong when saying we should not sell to other african countries. We should trade more with ourselves to create a bigger market. A bigger trading block has a sizeable middle class even though many are poor.
and please by the fact some guy was lucky in making predictions it does not mean everything he says should be believed is going to happen. After all there is a prophecy in the bible(i think it must be revelations) that says one day a “bag of gold (the minerals you are talking about) will buy a loaf of bread”. I hope we don’t see that in our lifetime.
Noni:
Where is Kenya going to get the money to continually improve it’s infrastructure when the coalition government is chewing up 80% of the national budget? I see 4 possibilities here:
1) Raise Taxes, but those are already very high and any more increases will just anger the public and hurt any potential business investment.
2) Keep listing parastatals on the NSE and try to raise money from the public, but at some point, they are going to run out of companies or parastatals to list and then where will the money come from?
3) Borrow money from the international capital markets, but with this global economic crisis, that is going to become increasingly difficult to do.
4) Print money– but inflation is already at 30% and what will printing money do? drive inflation upto 50%?
The question now is not what the government intends to do. It’s where is the money going to come from?
How will tourism boom when people in the west are losing their jobs? The only possibility I see are old Europeans who are living on pensions and may decide that relocating to a place like Kenya will actually be cheaper for them (they’re pension money will go “further” in a 3rd world country like Kenya as opposed to Italy or Germany) — but other than that, I don’t see tourism “soaring” as you say.
KE,
I heard Dubai is collapsing. Real estate has plunged down to some areas up to 80%. Its all about the oil economy. And the new Dubai style city being built in Sudan has stalled too( I saw it on SKYCITYSCRAPERS.COM I couldn’t believe it shares same country with Darfur let alone Africa) Again blame the oil prices. I guess this shows diversity of the Economy is paramount. Wow! If the Dubai 22nd century economy is in trouble what about our poor Kenya’s vision 2030. May be we should extend that calender to vision 2050.
At first you said the “fake US economy” sounded like Kenyas economy when you listened to the video clip you posted. I think its not the same. The genesis of the US economy started from the sub prime mortgage market. Banks gave risky loans to people who where not credit worthy because at that time the economy was doing pretty well and people took more risks. Then enter Bush and he went ahead and screwed the economy with useless spending on meaningless wars. I hear they have been printing to so much US dollars as in 1 year printing dollars that have before taken 15 years to print!. This off course devalued the dollar which led to increase in interest rates which led to defaulting of mortgages. As you know, mortgage companies where getting this money from banks all over the world including US banks to keep loaning more and more money for mortgages. (I friend of mine tells there an immigrant kenyan in the US with 2 huge mansions in Californian coast. The guy is like 50 years and is divorced and his children are all grown up. So you wonder when will the guy finish paying the mortgage). This then lead to global financial crisis.
On kenya we can ask ourselves, where do banks get money to loan to businesses or give mortgages. The money comes from Kenya economy. From deposits and savings by the Kenyan people. People are making more money and saving more and therefore banks have more money to lend. This trend may have slowed down because of PEV and inflation(meaning less savings and business suffering losses because of PEV) but its wrong for you to compare Kenya and US economy.
Again going by your argument, you say US is going to fall and the rest of the world (europeans, asians, latin americas and counties with minerals and oil) continue to prosper, it means we are still going to get tourist from other places. Infact right now US tourist to kenya are just a small percentage maybe because of lack of direct flights and kenya being very far from the US. So you see even in your arguments you contradict yourself.
Again we are all unhappy with the bloated government but saying that 80% of our taxes goes to financing the government i think that is an exaggeration. If you have facts please table them. The biggest consumer of the taxes is education because of free primary and secondary education. And again grand coalition is a transition government to 2012. After 2012 they will be no need anymore for bloated government. The only ministry I would personally like to be retained are the Nairobi metropolitan and Arid & Semi Arid Development.
I hate this know it all from kenyans in the diaspora…KE being one of them.
KK
Kenyans in the diaspora are still that – Kenyans! They have as much right as any other Kenyan to comment on Kenyan issues.
Last time I checked, they propped up the Kenyan economy with billions through remittances.
KK:
Look – we may all in fact be totally wrong about our analysis and that is why, I encourage people who have counter-points to come here and offer their viewpoints.
I keep telling people that blogs are not like the Hamurabi code — nobody will get “sworded” to death for offering a different opinion.
In fact, someone just pointed out to me that this months’ GQ magazine has an article on the booming economy in Kenya and I’ am desperately trying to find the link to it so I can post it here. So, we could all be dead wrong and you may in fact be dead right. Who knows?
KE, you need to read more extensively. to make better conclusions. to me you sound like one of the decouplers – who claimed the american economy is not that central to the world. guess what if america goes down everyone everyone is going down….but take heart america is not going down. we are in a period of creative destruction. As for gold if you want to put your money in Gold go ahead if you had you would have lost 25% in the last one year.
Joe:
It’s an interesting point you raise about gold because people have in fact talked about and their argument is this:
The dollar is going through an artificial resurgence right now. Meaning, people are bringing back their “cash” in order to clear the debts. To get technical, they are deleveraging to clear their margin calls. So, all those hedge funds, wealthy individuals and institutional investors who borrowed massively to buy stocks and who’ve now lost money, are bringing back their dollars in order to pay off the brokerage houses that lent them money.
Once, these people have cleared the debts, the dollar is going to start going down (because literally, there is no more money left). Then, once people see the dollar declining, they will shift their remaining cash into gold and that is when gold stocks will start climbing. So, yes, gold is currently down, but it’s going to go back up as people look for safer, alternative sources in which to place their investments.
America is still a substantial part of the global economy, in part because they still have solid companies that sell their products around the world. Everyone in the world drinks coca-cola and this company won’t go down. Microsoft has 90% of the world’s software market conquered and they are not going down.
However, the American middle class wage earner is going to see a dramatic decline in their living standards. They’re 401K’s are collapsing, Pensions are disappearing, they are saddled with credit card debt, mortgage debt, student loans, etc, etc. and their wages are not going up. So, yes, bill gates is not going to be broke, but he represents just 1% of the u.s. population.
And if you listen to peter schiff, he basically says that the bric countries (brazil, russia, india and china) are not going to suffer as much because they don’t have debt. What is killing americans is debt. The government is running huge deficits that china is supporting and the american consumer is also heavily in debt.
Hi kenyanentrepreneur.I think u have some some valid arguments. However; I have to disagree on some issues about the Kenyan Economy. You did write that the Kenyan Economy does not have a strong manufacturing sector which is not true. Companies like Bidco, EABL, Unilever, Mabati Rolling Mills etc are all located and manufacturer from Kenya and export to all this regions. Moreover; the financial sector is very sound to the number of companies that have branches in East Africa like KCB. I think you should liken the Kenyan Economy to that of Japan.
Chalo:
You did not seriously say that I should liken the kenyan economy to the second richest economy in the world, did you?
Boss… Wacha “Copy/paste economics…
US and Kenya are different. You are taking shortcuts like our pal Jimnah.
Remember, most of these so called “experts” are grossly incompetent.
I bet for every prediction that the dude made there were about 10 others that were totally wrong. He merely predicted rain and sunshine on different days – hence he would seem a genious whether it rained or didnt.
\
Maishinski
He reminds me of that “big daddy, little dad whatever” dude who wanted to write books and made up stuff about how his proxy rich daddy helped him get rich via property…
maishanki:
I think you missed the point. You don’t have to believe him if you don’t want to, but the point was, this guy called it correctly when everyone was seeing boom times ahead. At some point, you have to listen to people who get it right. I mean, where else are you going to get information from? the moon?
And when I post video’s, it’s not copy and paste. It’s to provide a different perspective for my readers and in this case, it is a perspective that is proving to be correct.
My comparisons to Kenya are that I think there’s been excessive and “loose” lending (e.g. giving out loans so people can buy shares, etc, etc) and in this respect, they are some similiarities to American banking, which really loosened it’s lending standards especially when it came to giving out loans to sub-prime mortgage borrowers.
In other words, the economic growth was being fueled, not by manufacturing or production, but by banking and leverage.
I don’t understand why people continue not to get it.
Mainat:
Still missing the points? I give up.
@KE
FACTS:
Industries accounting for 70% GDP Contribution in Kenya in 2007:
1. Agriculture/forestry/Fishing 24.4%
2. Transport & communications 11.71%
3. Wholesale / Retail (a’la Nakumatt et al) 9.88%
4. Manufacturing 9.78%
5. Education 5.63%
6. Real Estate 5.31%
7. Informal sector 3.72%
Source CBK.
A little research doesnt hurt. Dont listen to world bank, IMF and other colonial conmen. It is well known that they have ulterior motives.
For example: Rather than offer real help in the form of 10year interest-free repayment holidays for debt laden countries (so they can re-channel the funds internally), the IMF/World Bank institutions prefer to offer MORE CREDIT.
Why more credit? $1 prize for winning guesses…
Goood point..Maishinski ! KE is just brainwashed by her so called Roubini’s…what they say… hundreds have said..whats new? IMF is destroying economies!
Maishanki:
Good luck believing those numbers put out by the politically infused CBK
The problem with Africa is not really the IMF. It is that we come from a culture that does not believe in production. We don’t know how to use our brains to do anything and we make nothing — we don’t make cars, tv’s, roads, bridges, nothing. This is not the fault of the IMF. This is a fundamental cultural problem that exists throughout the continent.
BN Mwalimu:
Now, now…how has Roubini brainwashed me? And by the way, I am not a fan of the IMF, which I have referred to here by it’s synonym, the Infant Mortality Fund, but AFricans need to stop blaming the IMF and world bank for all their problems. Don’t we have brains of our own?
And Roubini has been right in his analysis of the U.S. economy. He has not talked about Africa. So, I don’t know why you are hating on him.
My posts are not put here so you guys can believe everything people say. I assume that each one of you has a brain and you will come to your own conclusions about things. The posts are here to simply inform you. I don’t know why Kenyans have such a hard time understanding this? I think some of it stems from the lack of a reading culture in the country. There’s a general disdain for information and a tendency to look at it with anger as opposed to looking at it with thought and rationality and allowing the information to broaden your perspectives about the world.
Merry X-mas everyone!
Merry christmas KE
Psyd:
Merry X-mas to you too and to everyone!
I can’t get away from the internet, even on christmas day!
@KE
You wrote:
“We don’t know how to use our brains to do anything and we make nothing — we don’t make cars, tv’s, roads, bridges, nothing.”
Hmmm… May I suggest a resolution for 2009?
1. Decolonize your mind.
2. Decolonize your mind.
3. Decolonize your mind.
Stop using someone else’s yardstick to bash your self dignity! The west measures the worth of human beings on the basis of Material accomplishments. Do not fall for this trap!
This is one of the reasons they have a credit crisis – since the majority of their impoverished citizens had to sustain a facade – a fake image of wealth, based on things that they did not own, could not afford and had no clue of how they would repay for them.
Look around you and see what we have and had in Africa, then ask yourself what was missing…
Its all a facade. First they declared your forefathers “primitive” and tried to “civilise” you. Now they declare you “poor” and try to “develop” you. In the meantime, one constant remains.. CONTROL.
Maishanki:
I’ve heard this argument before — that the west is to materialistic, but I’ve come to believe that being greedy and materialistic may not be such a bad thing because it spurs innovation and creativity.
However, beyond that, I think it’s a facade (to use your words) to suggest that Africans are not materialistic. We are. In fact, everyone is materialistic because everyone likes, wants and needs money. If I gave you a million dollars in cash, would you turn it down? I somehow doubt it.
While the bankers screwed up the financial system, America is still a land of innovation and that innovation has created real wealth in many instances.
So, being materialistic is not bad. In fact, I think it’s a natural phenomenon inherent in all human beings. We want, want, want….all the good things in life (sex, money, power, etc, etc). The question is not if people want these things (they do), it’s how to get them.
…and, with all your greed and materialism, what have you innovated lately? Give just one example.
You epitomize the typical chest thumping redneck – claiming credit for other people’s achievements.
The need for Material possessions is one of the “lower needs”. It is basic and primitive. It can cloud all other judgement and can make human beings behave like mindless animals.
Once you are free from this basic need, you will reach a level of development that Africans effortlessly achieved and continue to achieve (but few realize it – thanks to brainwashing). Marslow defined it as “Self Actualization”. Status symbols and inanimate objects mean nothing at this level.
I have seen people working 2 jobs (18 hours/day) and using all the money to educate their siblings and extended family. Objective: Self sacrifice for the benefit of society – rather than the individual. The person forfeits status and power symbols for the sake of a higher objective.
You probably don’t understand the essense of what I just wrote. Based on your post, I seriously doubt whether you are an African. The hoarding instinct is too strong.
Maishanki:
Those people who are working 2 jobs and using the money to educate their siblings are doing it for what purpose? so their siblings can get an education right? but why are people so hung up on getting an education? is it because they want to become sweepers after school? no. It’s because many believe that education is the path to getting a good job (read: a highly paid, office job) aka, a job with money and presumably that money will then enable them to buy all the materialistic things that we all desire.
People don’t spend years in school just for the “love” of learning.
Eeeeeee! Wrong again!
Africans who educate their siblings seldom ask for anything in return. There is no materialistic agenda. Its all done froma pure heart and desire to do whatever you can so that other people can have a better life!
I know many Africans who have achieved financial independence and still actively pursue learning opportunities simply to further their knowledge.
To them learning, just for the sake of learning, is enjoyable and essential.
Moody Awori for example…