WHEN GEORGE SOROS SPEAKS, PEOPLE SHOULD LISTEN
"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown." ... The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."
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"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy.
"Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."
He also had a few very sharp (and important to understand) words about the future of the U.S. dollar as the world's de facto reserve currency. This is essential to understand not only for the standard macro-economic/political/moral reasons I usually bandy about here, but because it's something we each need to understand so we can protect our savings, incomes, and livelihoods going forward:
He also said the U.S. dollar is under selling pressure and one day could be replaced as a world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights, a currency basket comprising dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.
"Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
Soros said there was a risk of a "tipping point" for the dollar which would see it slump, triggering higher interest rates and choking growth.
"This leads you to what used to be stagflation -- stop, go. And I think that is what's probably in store, rather than . . . hyperinflation."
China recently proposed greater use of SDRs, possibly as an eventual global reserve currency.
"In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge -- you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.
In short, remember some of the stuff we talked about a couple weeks ago in posts and comments: Here, here, and here. The US monetary system -- whereby a private bank with quasi-governmental privileges issues debt instruments backed only by future issuances of those same debt instruments along with the full faith and credit of the debt-addled government that mandates that all debts private and public must be settled with those debt instruments -- is a gigantic ponzi scheme. And like all ponzi schemes, the jig is up when the bagholders can't find new buyers (i.e., new suckers).
The jig isn't yet up, but it's a whole lot closer than it's ever been. Take a look at the final highlighted sentence in the Soros piece. China has gone on record suggesting a switch away from the dollar as the reserve currency. China has been the biggest buyer of dollars and dollar-denominated debt. Mostly so they could keep it high against its own currency, so we Americans could keep buying the cheap shit it was peddling. But if the U.S. is in a depression, and folks stop buying China's goods (throwing its own tenuous economic growth into danger), why will it bother continuing to purchase a weak currency that will never be worth its supposed face value?
The answer is, China won't.
Right now it's good to have your savings in the dollar or dollar-denominated notes. But sooner than you think -- maybe tomorrow, maybe five years, maybe somewhere between those points -- the house of cards is gonna fall on you. And if all your savings and income are in dollars, you'll be broke. The Age of Pyramids is coming to a close.