Demise of United States is Over Hyped
Politics / US Politics Nov 12, 2010 - 05:13 AM GMTBy: Tim_Waring
Right now, the most crowded trade on the planet is the bet against the dollar and the US.
In my view, those that believe the dollar will become trash have gotten carried away. When Warren Buffet was a young man, his father was terrified of just this. Granted, you would have been better to invest in stocks for the past 60/70 years but the dollar has not collapsed in the way he feared. On the contrary, it is now more pivotal to the world's economy rather than less and here are a few reasons I believe it will be around for another 70 years at least:
Utility - it has a unique role in world trade that we will struggle to replace. Paper currencies were invented because it was impractical to use gold/silver for trade. This is more so today.
The US has a massive debt problem but the bulk of this is held domestically. There will probably be internal defaults but the US will not default on international creditors unless it wants to.
At the moment, the only country that wants a weak dollar is the US. It suits the Fed and Washington for now but an imploding dollar will not.
Although a democracy, it will act autocratically when need be. This could mean almost anything from exceptional taxes to leveraging their military strength. Marc Faber predicts the dollar will go to zero within ten years and says that you want to buy a small farm in the middle of nowhere in preparation for financial and geopolitical melt down. Well, if it comes down to that kind of global fist fight who's team do you want to be on?
The assets of the US are staggeringly large. I am not suggesting they will start selling aircraft carriers or Alaska but often the enormous wealth, land/real estate value and natural resources of the country are taken for granted.
The US is the biggest innovator and exporter of intellectual property on the planet. That is some long suit. Oh, and also its pretty strong in energy, agriculture, pharma, finance, media, internet, technology, electronics, defense.....
It is in an enviable position of having developed a diverse and massive economy. It's taken hundreds of years and millions of failed innovations, businesses, lifetimes and several wars.
Do not get me wrong, the country has a massive task ahead which needs the right political will and many years of hardship and graft by the taxpayer. The country has a spending rather than an earning problem. Any businessman knows hatchet jobs are far easier than growing revenue. You do need a strong stomach but this comes from necessity. The public is already sensing this. Obama is unlucky to be president at a time when essentially a wartime style is required. This is why I believe the public are now looking for a more familiar presidential style for facing the tough years ahead. The country is in a hole and it is going to take a war-like effort to get them out of it. But, I believe they will do it.
Tim Waring
http://grittyeconomics.blogspot.com/
I am a businessman and an investor, not an economist. Having spent the last 15 years in starting and running businesses I have a keen interest in how economic theory meets real world markets and economies.
© 2010 Copyright Tim Waring - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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