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Money and Trade 101

Sep 25, 2009

Since last March the US economy has been on the rise. This is the result of a number of factors. In part, the "stimulus" money has been flowing rather freely. Secondly, the dollar has been eroding quickly in value.

During the 1990's the Fed worked hard to keep down the price of gold. The flip side of the coin is that they worked to keep the value of the dollar at a high level. This policy ensured that US goods cost too much money for most foreign customers to buy, so our balance of trade suffered greatly, month after month, year after year. Corporations then built their factories overseas in order to utilize cheap labor and make more sales. Foreign laborers came into direct competition with Americans for jobs, and the American workers lost.

Eventually, this caught up with us. It was, after all, only a matter of time. Now the Fed is busy creating trillions of dollars to "stimulate" the economy. This has driven down the value of the dollar and has made US exports more affordable to other nations. Even so, there has not really been a serious rise in US exports. The more important factor has been that Americans are just not buying as much any more--because they cannot afford it and are nervous about losing their jobs. So if they have money, they are saving more. In other words, we are importing less because we can't afford to buy as much, regardless of where it came from.

Saving money is bad for the economy, believe it or not. If we don't buy what is produced, people get laid off. It's a crazy world, I know. He who saves a lot wins the game, as long as his neighbors buy a lot and save nothing.

The downside, of course, is that with the dollar collapsing, China and Japan have decided to "diversify." That's like a man telling his girlfriend, "I think we should date other people." It is a polite way of backing out of a relationship. Without China and Japan buying our debt, we could face economic armageddon, they say.


When interest rates went down to near zero in Japan twenty years ago, many super-rich investors borrowed money from Japan at no interest and invested it in US bonds that were paying out much higher interest rates. It's called "carry trade." It was free money for those who were big enough to have a business relationship with the Bank of Japan. More than that, they could leverage their money 30 times or more, and actually double their money on these loans.

Now, however, the Fed has lowered interest rates to near zero here, and so the situation is now reversed. Big money men are now losing their shirts and their shorts. Meanwhile, however, with the Fed's interest rate at near zero, the super-rich can borrow billions at almost no interest and use it to purchase bonds from other countries that offer higher rates of interest. In an interview with Peter Schiff, we read:

“The yen has gone a lot higher but the dollar is going to go a lot lower, which makes it ideal,” said Schiff. “Not only can you borrow dollars for very cheap and earn to carry by investing in higher yielding assets, but the dollar is going to fall sharply. So anyone who puts on the carry trade is going to make a ton of money.”

Schiff said the Federal Reserve will soon run into the dilemma of either having to supply the carry traders with an endless amount of cheap dollars or put a halt to the carry trade and aggressively raise interest rates, which will “bring on a much more severe recession than anything we’ve experienced so far.”


So once again, the Fed is between a rock and a hard place. Cheap dollars loaned to their cronies will "make a ton of money" for them personally, or for their companies, but it will be bad for the US economy in general. It's a situation where certain men are influential enough to make lots of money at the expense of the country. When men from Goldman Sachs, or J. P. Morgan Chase, or Citibank are appointed heads of the Treasury and the Fed, guess who makes money at the expense of the country? There is no one to stop them from doing it, because it is perfectly legal, and no Congressman dares to do anything about it.

Greed is what will bring down this Babylonian system. Evil always ends up destroying itself. The serpent eats its tail until it is consumed. Unfortunately, we the people fall with them, unless we understand some of the basic principles of economics, see the trends, foresee long-term inevitable events, and are able to defend our assets.

Right now the danger is that the value of the dollar will go low enough where nations like China and Japan will revolt against the dollar, sending it crashing down to the ultimate intrinsic value of all unbacked paper currency. Zero.

Perhaps then the world will get curious about Kingdom economics.

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Category: Financial

Dr. Stephen Jones

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