[Aletheides]

Let's suppose six castaways are stranded on a desert island, five Asians and one American. Their problem is hunger. So they sit down and divide labor as follows: One Asian will do the hunting, another will fish, the third will scrounge for vegetation, the fourth will cook dinner, and the fifth will gather firewood and tend the fire. The sixth, the American, is given the job of eating.

So five Asians work all day to feed one American, who spends his day sunning himself on the beach. The American is employed in the equivalent of the service sector, operating a tanning salon that has one customer: himself. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table built by the Asians specifically for this purpose.

Now the American is practical enough to know that if the Asians are going to continue providing banquets they must also be fed, so he allows them just enough scraps from his table to sustain them for the following day's labor.

[To make the analogy more realistic], let's assume the American on the island pays for his food the same way real-world Americans pay, by issuing IOUs. At the end of each meal, the Asians present the American with a bill, which he pays by issuing IOUs claiming to represent future payments of food.

The castaways all know that the IOUs can never be collected, since the American not only produces no food to back them up, but also lacks the means and the intention of ever providing any. But the Asians accept them anyway, each day adding to the accumulation of worthless IOUs.

The Inevitable Collapse of the Dollar

Crash Proof: How to Profit from the Coming Economic Collapse

How to Profit:
1. Borrow money in USA and put it into foreign income producing investments. Use this income to repay the loan. As the dollar drops, the income you receive from these investments will turn into more and more dollars, and make loan repayment easier every month. In just the last 4 months the exchange rate for dollars to Mexican pesos has dropped by 5% - I don't think this is stopping anytime soon.

2. Hedge against the fall by buying gold and silver. This isn't exactly profiting, more like covering your ass. I now buy silver at the end of every month, as my checks roll in.

Any others? I'm brainstorming.

[Upperz]

Great post.

The nr 1 profit example means that the banks in the US will eventuelly have to pay the loss.
But as the US banks are already losing lots of money because of the morgue issue, I guess they are not really willing to lend money. Or will they do it just because they need income?

Well my way of making profit because of the low $ rate, is that my complete production (programming webapplications) now comes from Indonesia, as they use the $ for international transactions.
As I bill in € to my dutch customers, this gives me a big advantage.

[jasaunders]

You don't have a grasp of macroeconomics or finance. The analogy you described is not even close to reality and in no way describes the U.S economy.

[JLeezer]

Originally Posted by jasaunders

You don't have a grasp of macroeconomics or finance. The analogy you described is not even close to reality and in no way describes the U.S economy.

I'm with you on this. He could have also made some connection between how the game of Monopoly is played and how the US economy functions.

[Aletheides]

Originally Posted by JLeezer

I'm with you on this. He could have also made some connection between how the game of Monopoly is played and how the US economy functions.

Originally Posted by jasaunders

You don't have a grasp of macroeconomics or finance. The analogy you described is not even close to reality and in no way describes the U.S economy.

lol this isn't my analogy, it's the analogy of Peter Schiff - economic advisor to Ron Paul. I think it describes our economy perfectly.

If any of you disagree feel free present your counterargument.

Watch this video of Schiff debating about our economy in 2006 - with much the same economic principles.

Fast forward now to 2008, looks like Laffer owes him a penny.

On May 16, 2006 in debate on Fox News, Schiff accurately had forecast that the U.S. housing market was a bubble that would soon come to bust. On December 13, 2007 in a Bloomberg interview on the show Open Exchange, Schiff further added that he felt that the crisis would extend to the credit card lending industry. Following this observation, it was soon reported on December 23, 2007 by the Associated Press that "The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP... At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission."

[capforge]

The problem I see with this line of thinking is equating production to manufacturing. America has gotten away from much of the manufacturing of goods (though not nearly to the degree people seem to think) but what we have not stopped producing is IP. Unfortunately, the value of the IP produced has no easy way of being measured, so it isn't counted and we have a trade deficit on paper. But where do you think all the designs for the technology, toys, tools, clothes and everything else produced overseas come from? They aren't knocking each other off, or producing outsourced designs from Somalia- that is all IP from the US and Western Europe they are making. And personally, I'd rather have the factories somewhere else and the nice clean offices filled with smart people creating new technologies and designs here than the other way around.

[Aletheides]

Originally Posted by capforge

But where do you think all the designs for the technology, toys, tools, clothes and everything else produced overseas come from? They aren't knocking each other off, or producing outsourced designs from Somalia- that is all IP from the US and Western Europe they are making.

I have a hard time believing designs alone would offset the deficit.

Originally Posted by capforge

And personally, I'd rather have the factories somewhere else and the nice clean offices filled with smart people creating new technologies and designs here than the other way around.

Higher costs go along with this for basically the same work. Emerging countries are quickly proving that they can provide the same quality at a lower price - this is the downside to a global market.

For example, U.S. computer programmers competing with India.

There is a growing concern in the United States about the outsourcing of computer technology jobs to developing countries. But Professor White says there are benefits.

"The Internet and globalization in general allow Third World countries like India -- it's such a great example -- to really improve their situation by creating a wealthy middle class. And that's great for the world because it means salaries and income levels in those countries, where things are bad, are improving. So that's good," says White. "The scary part is that as those jobs go away, there is going to be a situation where a lot of Americans who are trying to find careers are going to have a challenging time."

[warrensway]

Most of this is near irrelevant. If you actually understood why global markets are good then I would discuss, but your nearsightedness on the topic is apparent.

[Aletheides]

Originally Posted by warrensway

Most of this is near irrelevant. If you actually understood why global markets are good then I would discuss, but your nearsightedness on the topic is apparent.

I never said global markets were bad - of course global markets are good.

But anyway, it's not like we're on a forum or anything... I like how you immediately pointed out my "apparent nearsightedness" from what, 3 sentences of my own words? Lol, nice. You're just too smart for this thread I guess.

IMO our currency is getting run into the ground. We start wars then print money or borrow money just to fund them, and this is one of the big reasons I think we're seeing a recession now.

Our dollar is backed by absolutely nothing. Many people still believe the dollar is backed by gold, in many instances this is still taught in schools today. The Fed recently sold off half of all it's gold reserves to manipulte gold prices.

Can anyone name a fiat currency that has actually withstood the tests of time?

Rome - fail.
Charles II's tally sticks - fail.
John Law’s fiat money experiment in France - fail.

History is filled with many more examples. While fiat currency lasts for a period time, it's not forver.

Look at the rate of inflation since the inception of the Federal Reserve in 1913.

http://www.economics-charts.com/imag...-1800-2005.png

If you work a job you better start working more hours or get a pay raise, you're going to have trouble keeping up with inflation at this rate. And don't even think about putting your money into savings, you'll only be losing it in the long run.

I ask them to look at a chart of the S&P 500 over the past 6 years of this war and ask them if the stock market has gone up in value or down in value. They all say up when looking at the $SPX S&P 500 index. I then show the S&P denominated in ounces of gold instead of dollars, and ask them the question again, and the truth is painfully obvious and it is readilly apparent that the perceived "bull market" is a sham.

In 2002, around 4 ounces of gold would buy you one share of the S&P index. Today, you can sell the S&P index for a little less than 2 ounces of gold. A 50% loss vs simply investing in real money, gold.

http://i22.tinypic.com/2ib2t7n.png

Presidential Candidate Ron Paul warns about dollar collapse.