[Brasso]

Well balanced article about the prospects of the dollar

Link here

[Kingcoal]

$this->bbcode_second_pass_quote('', 'T')o grasp what is going on with the dollar, one has to look at it as a world currency that is fuelling global commerce, not as the currency of an isolated nation-state. Since its beginning in the 16th century, capitalism has always had a hegemonic power that has acted as the central banker of the world and has supplied it with the liquidity it has needed. First this was the Spaniards, then it was the Dutch, and next it was the British, once they rid themselves of Napoleon. The demise of the British pound began with World War I, and after World War II, the dollar finally took over within the framework of the Bretton Woods system. At that time, the US was by far the biggest oil producer in the world, and accounted for more than 50 percent of global industrial production. Aside from the military might of a superpower, the dollar was backed by US current account surpluses and by gold. Today, only military might is left. Since 1971, the US has essentially been paying for its imports with printed paper, without a need to export goods and earn foreign currency or gold to pay for this. No other nation has this privilege.

Nevertheless, the dollar debt juggernaut fuels the world economy, and everybody is happy with it. It goes without saying that the US housing and consumer markets benefit, but the Japanese love it as well - the yen carry trade has enabled them to stabilize their shaky financial system with a zero interest rate policy and without inflation. China and Southeast Asia still have not developed domestic alternatives for their export-oriented industrialization, and the Europeans are content to sail in the geopolitical and economic wake of the US.

[marko]

The article does an excellent job of describing how this Ponzi scheme works, but it places too much emphasis on central banks and national governments. These bodies will continue to do all that they can to prop up the dollar, because they cannot afford the consequences of its demise.

What is much more likely to bring the dollar down will be a panic of private investors.

Here is the scenario: The dollar now receives strong support from the steady rise in US interest rates relative to rates for other major currencies, which continues to attract private investment to dollar-denominated assets. However, despite this interest-rate advantage, the dollar has tended to fall this year. Inevitably, steadily rising interest rates will bring a recession in the US, perhaps a very severe recession if higher interest rates pop the coastal real estate bubble. This severe recession will 1) crush profits, stock prices, and the attractiveness of US assets, 2) force the Federal Reserve to stabilize or more likely cut short-term interest rates, which would send the dollar plunging and further hurt the attractiveness of dollar assets to investors, 3) cut the US trade deficit, which would seem to be dollar positive, except that it would also cut the flow of dollars back into US financial markets.

Despite Fed rate cuts, market interest rates for dollars will be forced up, because otherwise the supply of investor dollars will be unable to meet the demand for credit to finance a Federal budget deficit that would mushroom in a recession. Rising interest rates will ultimately bankrupt millions, lead to millions of real-estate foreclosures, and most importantly, bring about the collapse of banks and hedge funds that have bought hundreds of billions of dollars of mortgage-backed debt in recent years.

These gyrations are very likely to unleash a panic and a flight from the dollar by private investors. The derivatives market is likely to intensify the panic, as it collapses when all players are on the same side of dollar-related bets and deals.

Even if private investors hold a fraction of dollars and dollar-related assets, the numbers are great enough to bring down the dollar regardless of the concerted counterefforts of central banks.

For example, the Federal Reserve is likely to print dollars to buy US Treasury debt in the scenario just described, to keep interest rates down. However, increasing the supply of dollars and suppressing the interest rate can only accelerate the decline of the dollar on world markets.

[Brasso]

$this->bbcode_second_pass_quote('marko', 'R')ising interest rates will ultimately bankrupt millions, lead to millions of real-estate foreclosures, and most importantly, bring about the collapse of banks and hedge funds that have bought hundreds of billions of dollars of mortgage-backed debt in recent years.

[clueless]

The global US banking system is a major factor in dollar hegemony. It will take a while to build the banking infastructure that it would take to unseat the dollar...

Willam Engdahl's "A Century of Warfare" is a good read to see how the London banking cartel hs pulled strings throughout history. I think Bush/Cheney are taking what is most likely our last opportunity to shore up our weapons systems before all our creditors decide to "pull the plug", what amazes me is why they cannot see it coming. If you were China and you saw your largest competitor arming to the teeth in prepartation for the final resource grab, why would you continue to fund it ??

Mybe they don't have a choice, or maybe they didn't think Bush would win(?) a second term...I don't know.

A friend of mine sent me a verse from the Old Testament last week, I was surprised to see this Fractional Banking thing has been going on since before the time of Christ.

Amo 8:4-5 Hear this, O ye that swallow up the needy, even to make the poor of the land to fail, (5) Saying, When will the new moon be gone, that we may sell corn? and the sabbath, that we may set forth wheat, making the ephah small, and the shekel great, and falsifying the balances by deceit?

[rwwff]

$this->bbcode_second_pass_quote('clueless', 'B')ush/Cheney are taking what is most likely our last opportunity to shore up our weapons systems before all our creditors decide to "pull the plug", what amazes me is why they cannot see it coming. If you were China and you saw your largest competitor arming to the teeth in prepartation for the final resource grab, why would you continue to fund it ??

[clueless]

$this->bbcode_second_pass_quote('rwwff', '
')Think deeply on this. China is not "funding" the US military build up out of stupidity.

1.) China's military history is about defense and unification.
2.) US military history is about offense and projection.
3.) Japan is still a wet noodle, and everyone likes it that way.
4.) China, Japan, and the US are awash in dollars.

Therefore it is in the interests of the Pacific Trading Block that the US project its power to insure that adequate oil continues to be traded in dollars.

[rwwff]

$this->bbcode_second_pass_quote('clueless', 'A')re you saying the US will have unlimited inflationary powers for the rest of the oil age ?

[clueless]

Stagflation for the US will be the norm ?

I can buy that. Gonna be pretty ugly no matter how you slice it for the middle class in this country. In order to pay down their debts they are going to have to find and capitalize off another bubble somehwere, which I don't see anywhere on the near horizon.

All the growth is occuring in Asia.

[marko]

$this->bbcode_second_pass_quote('Brasso', 'P')ersonally, I'm guessing that we're going to see some periods of very high inflation before this is out - I don't see any other way out for the US debt. The usual response to this is to raise interest rates sharply, but the last time this was done (by Volcker) there wasn't anywhere near the level of US debt, so the policy-makers are kind of hamstrung. As you rightly point out, high interest rates will throttle the economy.

High inflation seems to be the most obvious solution and the price of gold would seem to endorse this. Of course it would demolish the buying power of the dollar, but the Fed doesn't seem to be too bothered about that! This would allow the US to pay its debts and householders to pay their mortgages.

[clueless]

Is Russia now selling oil for rubles ?

How much effect has that had on the dollar ? Can Russia broker oil from other countries on this exchange ?

Just having an option for small countries not to have to hold inflationary dollars has to be a threat to all large dollar holders, right ?

Now that exporters are beginning to see the benefit of selliing oil and commodoties in alternative currencies, this cannot bode well for the FED, and large US creditors ?

If bush keeps running the printing presses like he is, conceivably, the dollar could drop another 20% before he is out of office. That would put oil up near $90 just on the falling dollar alone ? I am not a financial expert, but it seems the US is in an "inflate" or "Die" position.

In a nation with falling wages (I don't care what they say) , and high debts , that spells trouble.....Big time.

[DesertBear2]

$this->bbcode_second_pass_quote('marko', '
')To prevent that, if things start to look panicky, the Fed could face a choice between raising interest rates dramatically to try to save the dollar and the global financial system, or sit by and watch the global financial system collapse.

[Kingcoal]

I think the point of the article is that the dollar is a in a horrible state except for all others. The world is the dollar bank and like the article says, if you owe the bank a million and can't pay it back, you've got a big problem. If on the other hand, you owe the bank a billion and can't pay it back, the bank has a huge problem. The world's economy is currently based on the dollar and no one wants to see it fall other than those who stand to gain by seeing it fall.

[Euric]

$this->bbcode_second_pass_quote('Brasso', 'W')ell balanced article about the prospects of the dollar

Link here

[grabby]

Your health is everything. It is kind of nice not worrying about lots of riches, start downsizing now.

[Euric]

$this->bbcode_second_pass_quote('rwwff', '')$this->bbcode_second_pass_quote('clueless', 'B')ush/Cheney are taking what is most likely our last opportunity to shore up our weapons systems before all our creditors decide to "pull the plug", what amazes me is why they cannot see it coming. If you were China and you saw your largest competitor arming to the teeth in prepartation for the final resource grab, why would you continue to fund it ??

[BrazilianPO]

They embrace the dollar because of this:



and this:



So, if they decide to abandon the dollar, they should do it veeeeery slowly, swapping for euros or precious metals during the course of many decades, so they do not get bombed. Simple, isn't it?

(Edited for spelling)

[Euric]

By now China may be have both. So if the US uses them against China, China will use theirs against the US.

If that is America's solution, why aren't they using it against North Korea? North Korea switched to the euro and also is developing WMDs.


$this->bbcode_second_pass_quote('BrazilianPO', 'T')hey embrace the dollar because of this:



and this:



So, if they decide to abandon the dollar, they should do it veeeeery slowly, swapping for euros or precious metals during the course of many decades, so they do not get bombed. Simple, isn't it?

(Edited for spelling)

[BrazilianPO]

$this->bbcode_second_pass_quote('Euric', 'B')y now China may be have both. So if the US uses them against China, China will use theirs against the US.

If that is America's solution, why aren't they using it against North Korea? North Korea switched to the euro and also is developing WMDs.

[Scactha]

Russia and China are heavily invested in Iran now so any attack on it would be equal to an attack on them. Just because the euros stood by and saw the Iraqi oilcontracts being anulled in the invasion doesn´t mean the former tow would idly stand by seeing their investments go up in smoke. Especially when they have the US by it´s economic b*lls.