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Is the U.S. economy now dependent on the "kindness of strangers?"

Philip Klapwijk, David Morgan, Adrian Day, Mary Anne Aden, Doug Casey
January 6, 2004
Video Transcript

Female Host: Possibly one of the clearest signs of the danger facing the United States is the fact that the U.S. has gone from being the world's largest creditor nation to the world's largest debtor nation. The U.S. has such enormous deficits that we can only be kept afloat if other countries, in affect, lend us the money to continue by purchasing U.S. Treasury Bonds, bonds whose yield is paid by U.S. dollars created on a printing press. Therefore, we are indeed dependent on the kindness of strangers. At a time in history when conflicting monetary and political interests and even terrorism are telling us it's not wise to rely on this economic lifeboat much longer.

Philip Klapwijk: The U.S. essentially is dependent on foreign savers and has been to sustain a standard of living it wasn't producing for itself, difference was funded by foreigners accepting American IOUs. I think that whole system is coming to a close now as the recirculation of this money which has enabled the U.S. to essentially consume beyond it's means. And for that to be financed by those with massive trades with the United States is a system that's had it's day.

David Morgan: The United States, really, is not producing much. All their doing is producing debt and they're sending it over in exchange for these products. Now it would be equivalent to you having a tree in your backyard and taking money off that tree and giving it to me. I am manufacturing shoes, for example, so every time you want to get in the shoe business. So all you do is go in the back and pick up all the paper you want and you have this beautiful business going. It cost you nothing to go and take the money off that tree so to speak except maybe a few minutes. You give it to me, and I accept that, and I give you all these shoes, and you've got a booming shoe business, how long can that go on?

Adrian Day: Basically, it's unsustainable. More importantly however is the amount, because we're running these huge deficits, the amount of money the foreigners have to continue to put into the U.S. dollar, into the U.S. economy, and into U.S. financial assets just to keep the U.S. dollar where it is. Basically, we're talking about 80% of the world export flow of portfolio money, 80% of that, 4/5ths of that have to flow into the United States simply to keep the United States dollar at the same level at where it is. That is absolutely unsustainable; it cannot continue.

Mary Anne Aden: This is a sign that if this trend continues, and it's already in motion, it's going to be negative for the dollar, because as these countries get rid of their dollars, their selling them, converting them into other currencies like the Euro, they might move some gold into their reserves. This is something that is a cause for concern and it will affect gold in the sense that as the dollar falls, and especially if that fall begins to intensify, then gold is going to rise sharply.

Adrian Day: People say that one day foreigners are going to start selling the dollar, maybe they will, but the simple truth is foreigners don't have to sell a single dollar for the dollar to go down. They simply have to stop putting 4 out of every 5 export dollars into the U.S. and then the dollar goes down.

Male Host: So it's becoming more and more clear that relying on the rest of the world or the kindness of strangers to borrow and finance our way out of debt is a real problem. Now are we entering a so called tipping point for the U.S. dollar, especially considering enormous city, county, and state deficits, a downgraded U.S. credit rating, and the fact that entitlements like social security, Medicare, and other safety nets, would appear to keep the U.S. deep in debt beyond what most people could imagine just 10 years ago.

Mike Maroney: If we are going to have trillion dollar deficits as far as the eye can see, who's going to lend us the money? When you look at the world economy and you think the world economy is basically somewhere in the neighborhood of $60 trillion or something in that general vicinity and you think that we have to borrow $2, $3 trillion dollars each and every year just to stay afloat with this year's problems. That's 5% to 10% of the world economy that we have to borrow on a yearly basis. The money is not out there, but the money is going to have to be created and I think the government is making that perfectly clear. We're not going to continue to receive this type of money from the rest of the world. We're going to have to use quantitative easing. We're going to have to continue to print. It's just a matter of time before the rest of the world says, "Enough is enough." If the U.S. dollar starts to fall into the preverbal abyss and the rest of the world says, "No!" to buying additional treasuries, then that will be the last key catalyst to kick into gear. You better own gold before that happens, because once it happens there's no turning back.

Doug Casey: There's going to be a rush towards the exits. Everybody is going to see, you know, all these other people have trillions of these dollars, they're not backed by anything, the U.S. government is creating them by the bushel basketful, and there's going to be a rush where they all try to sell and be first out the door.

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