United States Heading Towards A Financial Collapse?

I am no financial genius – let me be clear about that. But lately, when I start adding the numbers together, the future of this country’s economy is not a pretty picture. 7 of our top trading partner countries are considering dropping the U.S. dollar; the euro is at an all time high against the dollar; the amount of real estate foreclosures and the credit crunch in this country is staggering. Ugh, it’s all getting to be a bit much. Sure, a lot of people will tell you to invest more money because of the dropping prices, and I cannot say I disagree to a certain extent…but still, these are some scary times for the old U.S. of A.

From the New York Times:

Still, several important factors besides the emergence of sovereign wealth funds are weighing on the dollar. One is that big investors from the United States “” ignoring the traditional “home bias” “” are pulling their money out of dollar-denominated assets. Stephen Jen, global head of currency research at Morgan Stanley in London, has calculated that United States money managers are some of the largest “dollar diversifiers,” pulling about $400 billion out of mutual funds in the United States and into international assets. Allocations into international assets have risen from 15 percent then to 22.5 percent now, he wrote in a recent report.

From Currency Trading:

It’s no secret that the dollar is on a downward spiral. Its value is dropping, and the Fed isn’t doing a whole lot to change that. As a result, a number of countries are considering a shift away from the dollar to preserve their assets. These are seven of the countries currently considering a move from the dollar, and how they’ll have an effect on its value and the US economy. “¦

Interesting times coming through….interesting times.

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Comments (12)

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  1. boomie says:

    China is pulling away from buying Fed Bonds as a way of ‘punishing’ USA for Bush’s announcement that he is going to send inspectors to China now to inspect all products coming into America. Like we should just be sitting ducks, eat their crap and have our children die and be poisoned?

    Let them pull away.

    What the NY Times (and others) failed to mention that our falling dollar is going to be our biggest boon ever! Our dollar means that more and more foreigners will be buying American now. They will be flocking to our shores buying, shopping, touring and yes! investing!

    It’s about time. If you want to be a smart American you will start focusing your attention on selling to the european, pacific rim, asian markets. If you are a travel agent, start advertising to the europeans to come to America, see the Grand Canyon, Niagara Falls, New York City, Las Vegas, California. If you are a real estate agent start selling vacation homes, apartments in top cities to foreigners. How many of us drooled over owning a villa in Tuscany, Paris etc? America has just as many great locations, wines, cheeses, cars, leather goods, top quality restaurants and food, pristine beaches (think Miami Beach). Anything made in America is excellently made!

    It’s time we stand up and capitalize on our good fortune!!!!! This can be our best time ever! We’re not looking at this correctly. There are plenty of opportunities.

    Now, get out there and do!

  2. david says:

    While I agree somewhat with your comment, I do take exception with this line:

    ” Like we should just be sitting ducks, eat their crap and have our children die and be poisoned?”

    It’s not just China – it’s our companies letting them get away with it. Also, Bush has in place ONE, yes 1, inspector of goods coming in. It both China’s and America’s fault that these products are getting in here. Also, it’s the consumer’s fault, for always wanting to pay the least amount they can. In order to get those prices down, manufacturers take shortcuts..

    Thanks for the comment!

  3. boomie says:

    David: yes, that’s right-we have just ONE inspector. As for the consumers fault-we need to demand ‘Made in America’ again. Consumers didn’t have much of a chance when ALL the toys (Mattel , etc. ) were only made in China. When you don’t have a choice, price has nothing to do with it. I tried to buy an appliance a few months ago. it was hard, if near impossible to buy something that was NOT made in China. I had no choice and no options.

    They can fool us once, but NOT again.

    We need to start reading the labels, shopping local and learning a foreign language (like Italian, French, Japanese etc.)

    A friend of mine held onto his manufacturing plant for decades. He refused to give up and kept changing his business model only to see his business dwindle to China and Asia. Now, today, his factory is BOOMING! Orders from foreign countries are pouring in (like Le Cruset) and he is making money again, employing the local community.

    America must change it’s business model and NOT depend on our government to bail us out. The feds already lowered rates and are meddling in our housing mess. Look at how that turned out?
    The American people have got to do this on their own.

    We will get through this. Let’s start by all being positive and move forward. OK?

  4. david says:

    boomie – I agree! However, even Made in the America label is not a pure indicator of a quality product. Sure, a lot of them are – but so are a lot of products made overseas. We have sweatshops and stuff like that right here in this country, so Made in America does not necessarily indicate a “good” product. We all need to read the labels, do the research, etc before buying the cheapest product at Wal-mart and the like.

    I agree with you – we the people have to make the choices for ourselves and make the change!

  5. KMC says:

    Here’s what drives me nuts about the so-called high-ranking Chinese official who made the (quickly retracted) comments yesterday. He’s a nobody who’s said similarly inflammatory things in the past. He doesn’t reflect official policy by a long shot.

    I think a weak dollar is, on balance, not a good thing. And I think the dollar is going lower. But it’s not because this guy (or any other) said ‘Boo.’ It’s because we ship container ships full of money overseas buying more than we sell. We’re slowly selling the country – bit by bit.

  6. david says:

    I agree – he has been called out by some people as a person of no substance. But even without him, we can see what is happening with our own two eyes.

    I fully believe it is only going to get worse before it gets any better – for a while.

  7. Tim says:

    This is all over panicking by people who say you shouldn’t panic and sell everything when the market starts to down turn. There are lots of people shorting the market which is creating such volatile markets. The bottom line, is the markets are still up from their 52 week highs, which seems to be completely ignored in all the negative press.

    The US economy has lots of absorptive capacity. Come on, $50billion to $100billion in write offs is pennies compared to our economy as a whole, and far less than the S&L crisis. So there really is no incentive to aggressively intervene by the Fed. Besides, why reward bad behavior? The Financials have made a killing off of credit and have lots of cash. They stand to earn more money off of further interest rate cuts. Notice that savings interest rates have substantially decreased in line with Fed cuts, but lending rates haven’t. So again, why reward bad behavior. At this point, the financials are taking large write offs on very aggressive loss models. In the end, in another 6 months when the dust settles, the losses aren’t going to be anywhere near what they have written down. Again $50-$100billion is nothing.

    I agree with Boomie: people shouldn’t be all doomsday about the falling dollar and high oil. We are already seeing signs that the weakening dollar is yielding the free market benefits, with the trade gap narrowing for two months.

    So what if countries drop the dollar. Someone else has to buy the dollars they sell. These dollars have to eventually work their way back to US goods and services or commodities traded in US dollars, like oil. The US has all the advantages in a dollar slump. Our economy is still growing, we still have low unemployment and have low inflation. Compare this with the euro zone whose euro has evaluated. They should be very concerned about the euro’s appreciation, since they have higher inflation, have higher unemployment. Their economies will have definite impacts when their exports to the US become slogged down because they are more costly.

    so what if they pull assets out of US mutual funds or other US vehicles. You can ride the spike in foreign investments, however, they will swing back. Why? Because you are starting to invest in a losing market. If foreign companies cannot sell goods that are more costly to the largest consuming market (the US), then their revenues will decrease, which translates in decrease in the foreign investments.

    As far as China is concerned, I’m very weary of China’s economy. The tigers have crashed before, and China’s fundamentals indicate a large bubble.

    people need to stop panicking. Yes, the markets are going to have some wild swings, because people are operating in the dark on the subprime and credit issues. However, even with the spikes up and down, we are still moving upwards. If people would just wait and see what the true figures are, we wouldn’t be having this wild ride. However, there are lots of people who want to make lots of money in these major swings. Those are the ones who tell the average investor not to panic and not to sell.

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  10. Tom says:

    The future of the USA worries me a bit and not many people are even discussing this issue. What gets me is that half of the people in the USA act like the system itself.. they spend more than they can afford. Then what happens? It all comes back to bite them in the butt.

  11. so true.

    i’ve been posting similar posts for the past few weeks. there hasn’t been any respite in bad news for the dollar or for the economy.

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