Jump to content
House Price Crash Forum
Sign in to follow this  
thedebtisreal

Kiyosaki Goes Uber Bear

Recommended Posts

http://finance.yahoo.com/expert/article/richricher/37414

During the height of the real estate bubble, I wrote a column saying that the crash was coming and suggested selling any piece of real estate that was overpriced, questionable, or non-performing. As expected, I received angry replies.

Today, I'm predicting the next crash, what I believe will cause it, and why it'll be a severe blow to the global economy. The signs are already here.

Busts Beat Booms

First of all, it's no big deal to predict booms and busts. All markets boom and bust. It's just easier to predict a bust because the signs are so obvious -- like excess euphoria, easy access to money, huge profits, and scores of happy amateurs entering the market.

Booms are harder to predict. They start silently, like oak acorns buried in the ground -- you don't notice them until they're towering trees. For example, few people recognized Microsoft or Google for the giants they were until after they'd become major players and the big profits had been made.

Paradoxically, that means busts are better because we can see them coming. This gives us time to prepare, and makes it easier to capitalize on them.

The Year the Dollar Died

The coming bust started in 1971. That was the year Richard Nixon took the United States off the gold standard, thus converting the U.S. dollar from money to currency -- that is, from an asset to a liability, and an instrument of debt. That was the year the dollar died.

After Nixon was forced out of office, the U.S. economy went into a slump under presidents Ford and Carter. We had high inflation and low growth, otherwise known as "stagflation," before Ronald Reagan and his dedication to supply-side economics -- Reganonomics -- came along.

Reagan cut taxes and started borrowing money, increasing the national debt. As a nation and as a people, we began borrowing and spending to spur the economy. And the economy boomed until 2000.

A World of Debt

It began to sink after 9/11. We lowered interest rates and began printing more money. In 2003 and 2004, the Bank of Japan created 35 trillion yen to save the dollar and their economy. It was like a loan of $320 billion to the United States, and probably prevented a run on the dollar.

This loan kept interest rates low, which prolonged the boom with easy money from cheap debt. The problem is that interest rates are now beginning to rise, and the mountains of debt will have to be paid back. If interest rates rise and the economy slows, a severe crash could occur -- a crash caused by years of accumulating debt in order to spur the economy.

The world has never been in this position before -- and the whole world is involved. That's because Nixon's actions in 1971 made the United States into a virtual empire. As an empire, we began dictating the terms of world trade: If you wanted to do business with us, you had to accept our new dollar as gold. Unfortunately, the world complied.

The New Money

Today, China ships us products and we ship them dollars. The problem is that the Chinese can't spend those dollars. If they do, the price of their currency, the yuan, would go up. Why? It's simply a matter of supply and demand.

So instead of spending their U.S. dollars in China, the Chinese buy our assets, especially U.S. bonds, with them. Because they buy our bonds, interest rates in the U.S. remain low, and low interest rates encourage Americans to borrow more money. This causes bubbles in real estate and the stock market.

The problem is almost as bad in China. The Chinese are using U.S. debt as collateral in borrowing yuan to finance projects within their country. With the Chinese economy booming and in preparation for the 2008 Olympics, the Chinese have gone shopping -- they want to look good for the world.

Using Chinese debt collateralized by U.S. debt, they've been buying natural resources from all over the world. Consequently, countries that are rich in natural resources -- such as Canada and Australia -- are booming. Real estate and stock markets in those countries are hot.

But the global boom is clearly built on a mountain of debt.

A Familiar Cycle

This type of boom has happened before. In 1971, Japan was finally emerging from the effects of World War II and becoming a world economic power. The Japanese were exporting cars and televisions to the United States, and because we were importing more than we exported, the Japanese took payment in U.S. gold. In fact, one of the reasons President Nixon converted the dollar from money to a currency was to stop this hemorrhage of gold.

In the 1980s, instead of using gold to finance their economy, the Japanese used U.S. debt as collateral for Japanese debt. This caused the Japanese economy to boom just as the Chinese economy is booming today, and it made the Japanese look like geniuses. Business books and magazines trumpeted the magic of Japanese business management.

Then, in the early 1990s, the Japanese boom busted. Their stock market crashed and the most expensive real estate in the world became cheap. Today, the Japanese economy continues to struggle.

China Isn't Japan

China's advantage is that it learned from Japan's mistakes. That's why the Chinese stubbornly refuse to revalue their currency -- they don't want to make it more expensive the way the Japanese did theirs.

Currently, the Chinese yuan is pegged at 7.6 yuan to one U.S. dollar. This makes the United States accuse China of being unfair; we'd like to see the yuan float the way the Japanese let the yen float. This would make it easier for us to reduce our balance of trade, as well as pay back our debt with cheaper dollars.

The problem is that the Chinese know from the Japanese experience that we can talk tough but not act tough -- they simply hold too much of our debt for us to take measures. And if the Chinese started dumping U.S dollars and bonds on the world market, the world economy might well crumble, just as the Japanese economy crashed nearly 20 years ago.

Time for a New Standard

While it's tough to predict the future, one thing is for certain: The U.S. dollar will continue to go down in value, and savers will be losers. With people all over the world piling debt upon debt and spending like fools, it might be best to follow the Chinese.

They've never trusted banks, but have always trusted gold. Maybe it's time we started doing the same.

Share this post


Link to post
Share on other sites

"While it's tough to predict the future, one thing is for certain: The U.S. dollar will continue to go down in value, and savers will be losers. With people all over the world piling debt upon debt and spending like fools, it might be best to follow the Chinese.

They've never trusted banks, but have always trusted gold. Maybe it's time we started doing the same."

Hmmm, over to you RB ;)

Share this post


Link to post
Share on other sites

Nice piece of writing. I like the way Kiosaky writes about worldwide economic armageddon with a confident pitch, like he couldn't care less

Share this post


Link to post
Share on other sites
Hmmm, over to you RB ;)

RB's argument seems to be that the pound will do worse than the dollar, which is possible. The flaw is that many other things will do better than the dollar, but he persists in holding dollars anyway.

Share this post


Link to post
Share on other sites
Nice piece of writing. I like the way Kiosaky writes about worldwide economic armageddon with a confident pitch, like he couldn't care less

Global economic and political collapse has to be a lot more fun than working in an office all day processing ******** paperwork. It would probably be an improvement for many people.

Share this post


Link to post
Share on other sites

Yes, I think that is actually pretty well-written insofar as he has a knack for making these concepts easily digestible to the layperson.

Share this post


Link to post
Share on other sites
Yes, I think that is actually pretty well-written insofar as he has a knack for making these concepts easily digestible to the layperson.

If he wasn`t writing articles he`d be delivering Inside Track seminars!! :lol:

Share this post


Link to post
Share on other sites
Time for a New Standard

While it's tough to predict the future, one thing is for certain: The U.S. dollar will continue to go down in value, and savers will be losers. With people all over the world piling debt upon debt and spending like fools, it might be best to follow the Chinese.

They've never trusted banks, but have always trusted gold. Maybe it's time we started doing the same.

jeez, this looks like the final stage of the gold bull run - mass awareness

best get in while it's still cheap imo....

Edited by dnd

Share this post


Link to post
Share on other sites
Guest Bart of Darkness
First of all, it's no big deal to predict booms and busts. All markets boom and bust.

Except the UK housing market (according to the bulls on here).

It's just easier to predict a bust because the signs are so obvious

Except, once again, to the bulls on here.

Share this post


Link to post
Share on other sites

Bump this article! Let's get it read by more people, it's excellent.

However, as ever, the piece raises as many questions as answers for me.

For instance, if gold were to become the 'standard' once again, would it give the governments of the world the excuse they need to confiscate private possession of gold? Is that a major risk of holding gold in the armageddon scenario?

Share this post


Link to post
Share on other sites
For instance, if gold were to become the 'standard' once again, would it give the governments of the world the excuse they need to confiscate private possession of gold? Is that a major risk of holding gold in the armageddon scenario?

What makes you think governments would want to confiscate gold? European central banks are the big sellers these days.

Gordon Brown would look ridiculous confiscating a few dusty old coins from the British public having sold tonnes at the bottom of the market himself!

Share this post


Link to post
Share on other sites
Bump this article! Let's get it read by more people, it's excellent.

However, as ever, the piece raises as many questions as answers for me.

For instance, if gold were to become the 'standard' once again, would it give the governments of the world the excuse they need to confiscate private possession of gold? Is that a major risk of holding gold in the armageddon scenario?

iirc rockafeller (in my sig) is supposed to have said that the central banks envisage, in the transition to a single world currency, 3 major fiat currencies with the possibility of gold as a fourth...

the central banks ultimately want to force us into a single electronic based fiat currency - gold won't survive this move...

Edited by dnd

Share this post


Link to post
Share on other sites
What makes you think governments would want to confiscate gold? European central banks are the big sellers these days.

Gordon Brown would look ridiculous confiscating a few dusty old coins from the British public having sold tonnes at the bottom of the market himself!

Didn't Roosevelt confiscate privately owned gold during the Great Depression? Maybe the Central Banks are selling it off with half an eye on taking it back at a later date - a double benefit to them.

I don't necessarily believe this BTW, not being one for conspiracy theories, but was wondering whether it would be at all possible.

Share this post


Link to post
Share on other sites
the central banks ultimately want to force us into a single electronic based fiat currency - gold won't survive this move...

:lol::lol:

Gold is an element. I repeat: an element. And it is scarce. It will survive anything. And it will stay scarce.

:rolleyes:

Share this post


Link to post
Share on other sites
:lol::lol:

Gold is an element. I repeat: an element. And it is scarce. It will survive anything. And it will stay scarce.

:rolleyes:

...and irrelevant if the central banks buy (or just take) the gold back from us - to force us into fiat...

Edited by dnd

Share this post


Link to post
Share on other sites
jeez, this looks like the final stage of the gold bull run - mass awareness

best get in while it's still cheap imo....

no technical reason to buy gold im afraid

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 355 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.