Will the Amero replace the dollar? Not any time soon, is our guess. We’re in a depression. Maybe it will become a Great Depression… or a Greater Depression, we don’t know. But it is a time of credit contraction… not credit expansion.

For the moment, prices are falling. The dollar is safe… at least, for now.

We paid a visit to France over the weekend. No one knows how France stays in business. Everything is very expensive and very difficult. Half the population struggles to earn a living. The other half struggle to stop them. But more about that later…

What caught our eye, walking down the street near the Communist Party headquarters, was a clothing shop. A few blocks away, you will pay $100 for a pair of jeans. But in this sidewalk shop, you can get a pair for $10. Shirts for $5. Jackets for $8.

The store is owned and run by what appears to be a Chinese family. They probably skirt French employment law by keeping the entire operation in the family. Then, rather than an expensive store, they have a cheap storefront in a bad part of town and put everything out on the wide sidewalk. Even in bad weather, they stretch out a tarpaulin over the clothes racks.

A $3 shirt? A $10 pair of jeans? That’s deflation. A few months ago, these same clothes may have had designer brands on them – alligators or polo players, perhaps. But upscale sales are falling. So the factories take off the brands and dump their excess production onto the low-rent market.

We don’t know that for a fact… we’re just putting two and two together.

Excess capacity was built with excess credit. That’s what happens in an expansion. Entrepreneurs borrow to increase production so they can sell more products to credit-addled consumers. Then, the excess capacity dooms them. They put out too many goods and too many services. When demand falls – along with incomes and housing – prices fall too.

Yesterday, the dollar held steady. The yield on the 10-year T-bond fell to 3.69% after reaching up toward 4% a few days ago. The rise in bond yields (with falling bond prices) was probably the most interesting story in the financial world… until they stopped rising.

What’s going on?

As we explained, there is no real economic recovery taking place. And with no real economic recovery, don’t expect a real bull market on Wall Street. Or real pressure on bond yields. (Of course… there’s much more to the story… so stay tuned.)

In the meantime, yesterday, the Dow dropped 200 points. It looks to us as though the rally is coming to an end. If you’re invested in US stocks now, sell them. They could go higher… but it’s not worth the downside risk.

Some things are obvious and predictable. Other things are not. And, of course, we always have to remember that we don’t know what we are talking about. As colleague Alex Green’s delightful new book reminds us, “the only certainty is surprise.” More later…

What is more or less predictable is that a severe depression is developing. Our iron law puts it this way: the force of a correction is equal and opposite to the deception that preceded it. The Bubble Epoque was extraordinary in practically every way – with illusions, frauds and absurdities galore. Ergo, so must be the Bust Epoque that follows.

From the housing sector comes news that even though houses are much cheaper, they are not necessarily much more affordable. While prices are falling so are incomes and employment. Mortgage lenders, meanwhile, learned that they needed to be more careful about whom they lent money.

In 2007, the banks were so loose their arms practically fell off. If they had been young girls, you would have found short poems about them in the boys’ toilets. They weren’t prudent lenders; they were promiscuous ones. But now house prices are falling and lenders say ‘no’ to everyone.

So the poor lumpen are trapped between falling incomes and rising lending standards; they can’t buy a house even at a much lower price.

The retailers are trapped too. They leased huge spaces to sell their wares; now they have no one to sell their wares to.

Sales go down; so do earnings. Bloomberg reports that business executives see what is coming. They look at the figures and see their businesses trapped between high output capacity and low pricing power:

“Insiders Exit Shares at the Fastest Pace in Two Years” begins the headline.

“Executives are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

“Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show.

“Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.”

Even governments are trapped. Yesterday, Nicholas Sarkozy told the French that he wasn’t going to follow the ‘austerity policies’ urged on him by the European Central Bank. “Austerity policies never work,” he said.

The French deficit is more than twice the levels permitted by the European Union’s economic guidelines. But at 7% of GDP it is still barely half America’s government deficit.

And over on America’s left coast, the government of Arnold Schwarzenegger is faced with the same crisis – only worse. The New York Times tells us that states, led by California, are putting government employees on forced furloughs, releasing prisoners early, closing parks and reducing education budgets. They need to watch out; citizens might notice that they never needed to spend so much money in the first place.

Speaking of prisons, for example, the states could save a fortune simply by getting rid of the jailbirds who never really did anyone wrong. By that, we mean the people who didn’t harm anyone but themselves… and arguably, not even themselves. There are hundreds of thousands of people in prison for drug crimes, for example. Let them pay a fine and turn them loose.

(If we were running things, we’d legalize drugs and make alcohol and cigarettes compulsory. TV, rap music and Barbara Streisand performances, on the other hand, would be outlawed.)

*** “France is rotten,” said a dinner guest on Saturday night, recalling DeGaulle’s famous warning that Vietnam was a “rotten country”… and that Americans should stay out.

“I’m fed up. You can’t do anything in this country without either getting permission or getting a fine. You can’t drive fast… even though the highways are made for much faster traffic. You can’t smoke. You can’t start a business… or sell one… or hire anyone. The way these employment laws work it’s safer to murder a bad employee than fire him.

“Someone is always telling me what to do… and it wasn’t like that a few years ago. I’m old enough to remember what it was like in the ‘60s and ‘70s. France was still a free country back then. You could do pretty much what you liked. You could ride down the road without putting on a seat belt. You could smoke in bars. If you didn’t like your job you could tell your boss to go f*** himself. Then, you’d just look in the paper… there were always hundreds of jobs. People changed jobs. If one didn’t work out… they tried a different one. Now, if they don’t like their job they go to court and the employer is really f*****. The whole process is rotten.

“What I’m really surprised about is the way the French have gone along with all this bossing… They’re sheep.”

“Wait a minute,” another guest challenged her. “France is still a great place to live. The food is good. The weather is usually pretty good. The health service works. The trains run on time… at least, when the workers aren’t on strike. It’s pretty to look at. I don’t know how much you’ve traveled, but compared to the places I’ve seen, France is way ahead. Besides, if you don’t like it so much, why don’t you just leave? Find some other country you like better… ”

“Ha… I’m too old now… and besides… they’re all rotten.”

*** Colleague Alex Green sent us a copy of his charming new book: “The Secret of Shelter Island.” Alex might be likened to the Roman Emperor Marcus Aurelius who used calm moments to think about what was really important. Alex uses calm moments in his life as a financial advisor to think about what money really means… what it is really good for… and what else really matters in life. The book is a series of short memos, in the Aurelian style, with hundreds of thoughtful, quotable remarks. Add it to your summer reading list: The Secret of Shelter Island… available at Amazon.com.

Source: The Bust to Follow the Bubble

First of all, we need to comprehend exactly what is to bring forth this new “arrangement.” What is wrong with the old one?

The dollar is on life support. The failing debt markets in the U.S. are the foundation of the dollar. The buck has seen no fundamental improvements that account for its most recent upward move. Consider it a bounce in a long-term bear market. The dollar index had not been under the 80 level since the mid-90s, not even when Nixon removed its gold backing in the early 1970s.

You may review my four part series from a year ago entitled “The Buck has a Stage 4 Malignancy” for my rationale regarding the dollar end game scenario. (Part 1, Part 2, Part 3, Part 4.)

For the purposes of this article we’re going to look at life after the dollar. Another series is likely under way.

One of the main things propping up the dollar currently is the fact that most other currencies are trash in their own right. The euro has its own problems. So does the British pound and the Canadian loonie. The one solid currency, gold, gets trashed on a semi-regular basis.

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You’re not supposed to opt out of the fiat system with such an alternative. Still, gold persists in grinding higher.

The Amero is deigned to be the currency used by the US, Canada and Mexico. I’m not the only one who sees the dollar demise. Our president is in on the fix. It’s hard to keep up with all the various schemes of the elitists who believe they know what is best. Best for who?

I travel to Canada and Mexico on a fairly regular basis. At the risk of generating scorn from our neighbors and allies… please permit a few generalizations. It seems the Canadian people have no desire of being assimilated into a larger regional currency system or country. Neither do the citizens of the US for that matter. Apparently the people of Mexico would love to link up with the US. There are somewhere near 12 million illegal immigrants in the US. Many are making their way back home because of the present economic malaise in the US.

Maybe some of our Mexican readers can correct me on these premises. Do Mexicans, as a whole, desire national sovereignty on a long term basis? Would you welcome a North American Union?

There is tremendous chaos in Mexico. Corruption and instability abound. The U.S. is also in an extreme economic crisis. Dramatic changes often come forth during times of crisis. Order comes out of chaos… New World Order. You will want to watch for it.

Let’s take a quick time out here. We had a lot of fun with the locals during my recent trip to Vancouver. We persisted on asking a cabbie, a concierge or a local where to go for the best Canadian food around. All were pretty dumbfounded at the request which was made in jest. What exactly is Canadian food? Doesn’t every country have peculiar culinary delights?

We heard about halibut, maple syrup, french fries with mayo and bacon. What else do Canadians specialize in? This is important, especially if we’ll soon be one big happy family. The food we enjoyed was primarily multi-ethnic and was superb.

Why would elitists want to combine these sovereign countries? It’s always about power and money. Canada is incredibly rich in natural resources. The US is rich in financial shenanigans and good old fashioned know how. Mexico has both resources and plentiful labor.

The sovereignty of all three countries is at risk. Treaties are made that make end runs around the U.S. Constitution (and others). Borders are left unprotected. Road maps to a currency union are drawn up.

A common currency is only an initial step. National sovereignty comes later. The twenty-seven nation European Union and its euro are the prototype. Bigger is supposedly better. Centralized power over as many citizens as possible is the goal.

Source: My Fellow Amero-cans