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Surviving the Global Financial Meltdown

By: Steve Johnson

3/11/2008 - 44 Comments

The financial markets of the entire globe are in for some troubled times.  It's going to be next to impossible for central bankers to absorb the trillions of dollars of losses they are facing with the collapsing US housing market.

The US Federal government is getting more and more desperate, as seen by the increase in their language and actions over the last six months. 

This week, they are suggesting that banks simply forgive part of mortgage loans just to avoid more foreclosures – which could threaten to take down the entire bank. 

The Fed is also increasing its short term lending auction from $30 billion to $200 billion in an attempt to stop credit markets from freezing up.  Meanwhile, inflation is climbing all around the world, with China hitting a 12-year high of 8.7 percent in February and oil prices hitting new records almost daily to top $109 per barrel.

When will the meltdown start is no longer the question.  The global financial meltdown is underway. 

Reference Article: The Imminent Crash
Reference Article: The All But Forgotten Doomsday Crowd

The US is Exporting Inflation

The financial meltdown is causing problems for China, India and Europe as well as the US.  The actions of the US government are causing nations around the world to take similar actions to protect their economies from the US slowdown.   To prevent their currencies from rising against the dollar, making their products unaffordable to US consumers, they are inflating their currencies.  The downside of increasing their money supplies is that it is causing a drastic rise of inflation within their nations. 

In an attempt to keep selling product to the US consumers, nations around the world are forced to inflate their currencies – which is creating a large spike in inflation. 

Foreign nations are trapped between letting their currency rise against the dollar – which will drag their economies into a recession, or inflate their currency to match the falling dollar – which creates a large spike in inflation within their economies.  So far they are choosing to inflate their currencies.

Will They Let the Dollar Sink?

If at some time in the future foreign nations choose to stop inflating their currencies to match the sinking dollar, the dollar would drop by a much larger percentage then it is now – perhaps by as much as 80-90% of its current value. The only problem is that foreign nations would be cutting off their biggest customer – the US consumer.

So far, they don’t believe they can cut off their biggest customer, but they are scrambling to find new customers.  If one nation like India stopped inflating their currency, while the rest of the large nations continue to inflate their currencies, India would not be able to sell to anyone.

So, the only way that the large nations of the world can stop inflating their currencies is if they all stop together. That way they will be able to buy/sell from each other as they do now. The only customer they will be losing is the US consumer.  But, once they realize that the US consumer is broke and no longer has money or credit, these foreign nations will not be losing anything – but a customer that can’t pay their bills. 

If the world lets the dollar sink, they will probably all suffer a recession, which will be very hard on millions of people that already live in poverty.  But, they will soon realize how wealthy they are in comparison to the US. Their buying power will be almost double against the dollar.

What Will Happen to the US?

When this happens, the price of imported products will skyrocket and inflation will hit double-digits. America’s will soon be unable to buy the cheap products we have enjoyed for decades. 

The US economy will go through a major adjustment, as the economy transitions from 70% consumer driven to 70% producer.  The high prices of imported products will once again give legs to the manufacturing industry.  Entrepreneurs will flood the market will new businesses, as old businesses go bankrupt. This transition is likely to push the US economy into a lengthy recession.

The good news is that the freedoms of the US economy along with the legal system provide the best competitive advantage in the world. If any nation was to suffer a recession, the US is best equipped to produce the fastest recovery.

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Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

In discussions of today's economic meltdown and what to do about it, the Federal Reserve is a stealth helicopter: it never shows up on the radar. With the exception of a few esoteric specialists and those Ron Paul Revolutionaries who burst into chants of "Abolish the Fed!" Historian Thomas Woods notes in this important book, the Federal Reserve bears a large part of the blame for the mess we're in. In the first part of "Meltdown," Woods shows how both in theory and in practice, Fed policy fueled an artificial boom and is now leading us to a much larger meltdown.

Gold: The Once and Future Money

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The Hyperinflation Survival Guide: Strategies for American Businesses

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Freedom: America's Competitive Advantage in the Global Market

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