Michael Pento — De-crowning the dollar, and the 'collapse' ahead

This is a nonsense post  that repeats the shibboleths of US public debt and unfunded liabilities.

China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated."

Congress finally reached a deal to end the 16-day shutdown, but it wasn't pretty. CNBC's Rick Santelli makes the case that the dollar's weakness is more about the Fed and a mediocre economy.

In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement through its Finance Minister last week saying, "The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden."

The reverse is actually the case. The US absorbing lack of domestic demand in China and Japan allowing their economies to prosper through net exports by acting as the world's market of last resort is actually what is occurring. Without this largesse, both China and Japan would be struggling economically, while the US would be enjoying full employment and growing the world's largest economy and expanding its might as the sole superpower while other countries wallowed an economic doldrums.

The US public debt owned by China and Japan and other countries is their savings in USD, for net exporters resulting in a positive trade balance. This provide the demand they don't have domestically that allows them to run their export-driven economies. They would not have to save in dollars if they spent those dollars in the US through balanced trade or foreign direct investment. Instead, they choose to accumulate foreign reserves and this is usually done to protect one's own currency. Running a peg against the dollar, China must do this to remain a net exporter with a currency advantage.

Then the story really gets ridiculous

The real problems of government largess, money printing, artificial interest rates, asset bubbles and debt have not been addressed at all. Rather, Washington has merely agreed to perpetually extend its lines of credit and to have the central bank purchase most of that new debt.

Instead of placating the fears of our foreign creditors we have cemented into their minds that the U.S. dollar and bond market cannot be safe repositories of their savings. The eventual and inevitable loss of that confidence will ensure nothing less than surging prices and a complete collapse of our economy.

The fear of an economic meltdown was the genesis of a constitutionally-based third-party political movement.

The Tea Party was formed to prevent runaway inflation and an economic depression resulting from a crumbling currency and devalued debt. It appears by the absolute and universal vilification of its members by both Republicans and Democrats that U.S. citizens are not yet ready to undergo the pain associated with the removal of our pernicious addictions.

Huh? The US is threatened with inflation due to "money printing"? When the Fed is "printing money" to keep a struggling economy afloat when inflation is at a historical low and low rates are not spurring investment in capital goods ostensibly since business is receiving any signal from increasing demand at the counter to justify expansion at this time?

If there is an asset bubble "caused by money printing," it is in equities, and equites are doing well in spite of the lagging recovery because  corporate profits have been rising due to cost cutting and external operations rather than domestic expansion.

Those who are foreseeing the decline of the US or it's losing reserve currency status need to explain what is going to replace the dollar. The RMP, a currency that is still pegged to the USD? The yen, with Japan's public finance far worse than the US on the standard in terms of which the Chicken LIttles are judging the dollar? The euro, with the EZ in depression and threatening to break apart? A return to the gold standard? Seriously?

Is this a post or at rant? Or is it a book promotion? Hey, Peter Schiff and others have done pretty well selling such nonsense.

We'll be hearing a lot more of such clap-trap explicitly or implicitly aimed at "fixing the debt" by cutting the welfare state as the budget negotiations get underway.

CNBC NetNet
De-crowning the dollar, and the 'collapse' ahead
Michael Pento | President of Pento Portfolio Strategies and author of The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market.