US Dollar Situation Very Disturbing Development...

[splitty]

Excuse my ignorance, but if the dollar goes down the pan, surely it doesn't matter where your money is, it's value will drop (although I assume there will be tax advantages of having it abroad).

Wouldn't you be better putting your money into a potentially more stable currency? Or is tax the primary concern here.

 

[zarni]

Hi there

This is Felix writing. In the middle of November of 2007, I had a gathering on a big yacht with 200 of our members. We discussed many things, but one of the things I suggested to people is to open bank accounts in Switzerland.

I suggested to people opening accounts with UBS, which at that time required a minimum deposit of only $100,000 US Dollars.

Today I received an email from my attorney who specializes in US Tax Law.

Here is exactly what the email said:

"I thought you would find this interesting: UBS is no longer accepting US clients…current accounts will remain, but no new accounts. This is an amazing development. There are other options, but most require large deposits ($3m+) from US clients."

This email sent a shiver of disturbance up my spine for the following reasons.

1. I am not sure if you knew this or not, but after the stock market bust in the late 1920s, the US Government passed a law, which made "gold holdings" illegal. They instantly confiscated everyone's gold, and gave them pennies of what it was actually worth, and whoever tried to buy gold again, became a criminal and was either heavily fined or went to prison. This was a desperate act of the government to inspire people to keep spending their money and stop them from hoarding it in other instruments.

2. I am not sure if you knew this or not, but just a short while back, in 2006, the US government stopped reporting the size of its money supply. That basically means that since 2006, it has been creating money, and nobody in the world officially knows how much money has been put into circulation. This means that the US dollars might be so overinflated in value than most people even realize.

3. In the beginning of 2008, Chinese officials have mentioned for the second time within a few months that they are holding too many dollars, and they would like to diversify their portfolio. Please note that Japan and China have been the two biggest parties buying up dollars, and their demand for dollars is what has kept it afloat.

4. Several times in 2007, and perhaps before that, there were serious suggestions made by some European country officials to set Euro as currency to buy and sell oil with. The fact that demand for oil has been high, and that in order to buy oil, one must buy it in US dollars, has also kept demand for dollars high.

So, to make the long story short, we have the US Fed printing as much money as they want, with nobody knowing how much exactly they have been printing, and I have a feeling that the supply of US dollars is increasing a lot more rapidly than demand for them. In addition to that, there are threats from many different parts of the world to hinder demand for US dollars even further.

Now, I hope you understand more clearly why that email from my attorney disturbed me. If a major Swiss Bank is stopping to accept US accounts, perhaps it's one of many preparation steps from US government to make sure its citizens do not get their money out of the country, in case there is another major financial crisis similar to the Great Depression.

This is just another suggestion that if you have a lot of savings in US dollars or other US instruments, I strongly recommend to take it out of the country.

According to the words of my attorney, it seems like Switzerland has shut its doors, but perhaps doors into some other European countries are still open...

Interested to hear your thoughts and suggestions.

This is mostly to crack down on tax evasion. Doesn't have much to do with preventing people from investing. There are many ways to invest in gold without using a swiss bank.
If you followed what happened in Germany they also cracked down on offshore accounts. US is just catching up right now.

 

[zarni]

Hello Felix,
I think you are going too far.
1. The letter from your attorney – From what I know UBS is in major problems a lot more then US Institutions and remember they have no Fed to help them less regulation and NO FDIA insurance so beware.
2. The US government - Today they don’t have to make "gold holdings" illegal all they need is to have all the brokers and their clients deleverage and all those Bubbles will blow (Gold, Oil and other commodities also the Old German DutchMark which is called today EURO).
3. As for living your money in the US – I'm not an American (I live in Israel and India) but most of my assets are in the US. I think if the US is going down every one will, but I don’t think that is going to happened.

Have the Best,
Sadhoo.

I agree with #3. People tend to forget that we live in a global economy. The dollar collapsing is actually worse for China then it is for the US.
However you are wrong about Gold and Oil being bubbles. We have entered Peak Oil era already and oil will not subside from these levels ever. It will be a steady relentless climb from now on. Gold will follow suit. It's just normal supply and demand economics.

 

[zarni]

Hi Folks,

IMO, keep your money in Euros, but if at all possible, keep it onshore as well. Wells Fargo is one of the last standing AAA rated US banks. They did not get into the subprime mortgages like the other banks -- they're very solid as a result. My partner and I learned that we can hold our business accounts in Euros there, good way to hedge against the battered buck. Also, keep your finger on the pulse of the plans for the "North American Union" -- the Amero (new currency to replace the Canadian dollar, US dollar and Mexican peso) is already in print. It's one of our government's prime agenda to dissolve our econonic and political sovereignty in the guise of world unity. If we don't stop it, it'll be here before too long, and there's no telling how it will affect the dollar's value when we have to convert over. Stay vigilant in these difficult times, continue to fight for our country's sovereignty, buy American made products, vote on election day.

pfgroup

Excuse me but I think this is a load of crock. Canada and Mexico who's economies are doing perfectly well would have to be nuts to hitch their monetary policies to the failing US economy. The amero will not happen anytime soon...

 

[zarni]

Many interesting points, but this has nothing to do with UBS's decision to not open US accounts. I concur with sadhoo and andrewdarnell on that note.

Much of what was been said about demand for the dollar is true. Oil is a big part of that demand and has been since the 1970's. Kissinger made a security deal with the Saudis that has promoted dollar based oil trade, but now we see this changing. To some extent Iran and Venezuela have already moved away from the dollar and others are threatening. Iraq is rumored to possibly trade in other than dollars in the future, but we'll have to wait and see. We are already seen the currency pegs begin to move amongst oil producing nations with Kuwait's shift to a basket of currencies from a pure dollar peg. Others are resisting, but for how long?

Don't be surprised if you see major economic changes in the Gulf countries driven by Iraq's upcoming dominance of the oil trade. It may seem far fetched to some, but it has started and Iraq's leadership role will soon become clearly defined for all to see. So whatever Iraq does in regard to a trading currency for oil will serve as a bellweather for others in the region. There may be some other big economic surprises coming out of Iraq, but it's all speculation so I won't go there, except to repeat a quote of General Petraeus from CNN today when asked if he'd consider the war a victory, Petraeus said:


While Japan and China are holding large quantities of dollars, their relationship with the US is still mostly one of co-dependence. Let's face it, it has been the high dollar that initially increase imports from China and Japan, and it has been the more recent creation of dollars out of thin air that has allowed US consumerism to continue. Until these countries can replace a large portion of their business with the US with exports to other nations, they are stuck in this trade game with the US for better or for worse for some time. These countries have long been aware that the Fed has been flooding the economy with dollars and elected to stay in the game for the sake of their own economies. So in the short term, there is little that these countries can do. In the long term, the US need to better mange it's financial affairs starting by making a dent in it's debt.

Meanwhile the high Euro is killing EU exports, so there is political pressure on the Euro to decline against the dollar. This is not value driven, but driven by the economic necessity for the EU to export goods. The world has been highly dependent on the dollar and cannot easily escape the incredibly irresponsible fiscal policy of the US.


You're actually better off with investments in the US than most US Citizens because the US acts like a tax haven for those investing from abroad in the same way that it tries to deny offshore havens to those from the US.

Just some thought's to consider.

Right on all points. However, only thing I will add is Iraq is going to be broken up or the US will retain control in the form of a puppet government which it currently is. Iraq is now acting as a big oil reservoir for the US and UK. Iraq's oil production is a fraction of what it used to be. There is a reason for that and that is the US is waiting for the real oil shocks to come to start handing it out to the drillers to oil companies to cash in.

 

[celilo]

Right on all points. However, only thing I will add is Iraq is going to be broken up or the US will retain control in the form of a puppet government which it currently is. Iraq is now acting as a big oil reservoir for the US and UK. Iraq's oil production is a fraction of what it used to be. There is a reason for that and that is the US is waiting for the real oil shocks to come to start handing it out to the drillers to oil companies to cash in.

Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal decline. I don't believe that we are there at all. I do see increasing demand from countries like China and India that will continue pressuring oil prices. The reality today is that production can be increased at any time, but it is being artificially limited. There are also huge reserves available in the US and Canada that are not being produced because their production costs are much higher. I guess that time will tell on the peak oil theory.

I disagree about Iraq. We have Cheney, the UN, the IMF in Iraq all praising Maliki and the new unity government that is being put into place. It's coming together and, puppet or not,and there are very strong political reasons to keep it together, such as reducing the influence of Iran in the Shia South and placating Turkey by keeping the Kurds from technically being autonomous. Look for a Kuwait like oil revenue sharing plan for Iraqi citizens.

Anyway, I'm wandering way off the thread topic, so I'll end these comments.

Again time will tell. I have no inside source, just a lot of research including a lot of translated Arabic media.

 

[DaveO]

Felix,

You have received some very interesting replies on your topic. I just pray that we are in for a "muddle through economy" type recession probably lasting a few years (John Mauldin), rather than a "depression the likes of which we have never seen before" (Robert Prechter). The latter could now so easily be triggered by a run on the banks. The pack of cards going down. Of course, that is what the entirely dishonest, corrupt and overly greedy financial system deserves but it is not what our peoples deserve. They have been managed by those who are supposed to be intelligent expert economists, bankers, insurers and credit reference agencies. All highly paid and highly privileged members of our society. Regulation is supposed to protect the vulnerable and they are Jo Public who generally do not think beyond the end of their noses.

I am in the UK but been trading US markets since 95. About 5 years ago I started to get alarmed at the way in which the Greenspan Fed was managing the US economy and the way in which our own treasury under Gordon Brown was deceiving us. I could clearly see the whole sub prime mortgage debacle growing, with lenders like Northern Rock offering up to 120% and they weren't even a sub prime lender as such. I could see how economic stats were being manipulated by governments and how we were becoming nations of negative savers in favour of big big spenders and this was encouraged by our respective governments. When Greenspan finally deleted M3 the message was loud and clear. We were heading for disaster.

During this period I did some reading and research and tried to remain open minded. I concluded that the whole shooting match was global and that for the worst case scenario even lodging savings in Swiss bank accounts carried risk. To do that requires some in debth research to find exactly the right banks there.

The only safeguard that made some sense in an arena which is nowadays very much global and highly complexed was to buy gold as an insurance policy.

I started to advise close friends and family to divert at least 20% of their savings to the yellow metal and regard it as an insurance policy.The ones that got in at about $400have done fine

With that comes the difficult question of storeage. No good lodging it in a safe deposit at the local bank or any bank for that matter. Ideally it needs to be under the mattress but again we are into risk with that crazy idea. These are challenging times !

Dave.

 

[svejk]

No panic [yet]

The Fed did stop publishing the M3 but the number is still available if you dig. Also, the term "printing money" is not understood well at all. Fed doesn't print $200bln and gives it to banks, people, firms, etc. These are merely wire transactions. I am not ruling out a huge issue as far as FED's silly moves go, these days though. The FED has been bailing out their friends for some time.

 

[svejk]

oil?

Oil prices are as far away from supply/demand as I am from China at this moment (really far)!!!

 

[StealthForex]

Re:"I thought you would find this interesting: UBS is no longer accepting US clients…

Some very interesting speculation here, but surely as professional traders we are supposed to dig beneath the surface and look at the facts - as best we can.

Has anyone thought about asking UBS why they have imposed such a ruling?

"Quote" -

UBS statement on regulatory actions by the U.S. Federal Reserve and the Swiss Federal Banking Commission
The Federal Reserve Board (FED) and the Swiss Federal Banking Commission (SFBC) have sanctioned UBS in connection with violations of an agreement governing its involvement in the "Extended Custodial Inventory Program" for US dollar banknotes. The FED has announced that it will levy a civil penalty of USD 100 million. UBS recognizes that very serious mistakes were made, accepts the sanctions and expresses its regret. It has already instituted corrective and disciplinary measures and has decided to exit the international banknote trading business.
In 1996, UBS, through its Investment Bank, entered an agreement with the Federal Reserve Bank of New York (NY FED) as part of the "Extended Custodial Inventory Program"(ECI). The ECI agreement allowed UBS to maintain in Zurich a depot for US dollar banknotes for the NY FED. Such depots are established with private sector banks in order to ease the introduction and circulation of new US dollar banknotes while retiring old ones.

As part of the agreement, UBS undertook not to deliver, accept or deposit US dollar banknotes into or out of the NY FED depot to or from clients in countries facing US trade restrictions.

After NY FED enquiries, UBS found that banknotes had been traded with Cuba, Iran, Libya and Yugoslavia, in breach of the agreement.

"UnQuote"


I do believe that the US economy is in for a rough ride for the next year or so, but every country in the world is well aware that the partial colapse of the dollar would ultimately be just as bad for them as it would for everyone else.

It is naive to think that it is an easy matter for countries holding vast reserves of dollars (which most countries do) to be able to quickly discard them in favour of an alternate currency. If they try to sell on the open market they would cause a crash that made their very holdings worthless. To do it a few percent at a time would take years, by which time there would be no need to change.

In the meantime, what is it that these foreign holders of US dollars are doing with dollars in the first place? That's right....they are trading with one of the biggest market places in the world....The USA....and believe it or not, this includes Iran. I do not say this as a statement of patriotism...It is a fundamental fact.

You may also wish to take note that although it is quite legal for a US citizen or resident to hold money outside of the USA they are legally required to declare all of those holdings to the IRS. As a US citizen or resident you cannot take advantage of the "tax efficient" off-shore banking system that many citizens of other counties are able to do.....at present.

Just my 2cents