$this->bbcode_second_pass_quote('Permanently_Baffled', '
')Is this currency recycling unique to the dollar (as the worlds reserve currency) or do all countries do this?
PeakOil is You
USA current account deficit breaking point?
by marko » Fri 29 Jul 2005, 18:19:17
PB: I love your signature map of the UK after the sea level rises!
You raise an interesting question, and I have to admit that I don't know the answer. I think that the scale of this currency recycling is unique to the US dollar only because the scale of the US current account deficit is so much greater than any other country's.
However, the UK, Australia, and New Zealand have been running substantial current account deficits. In the case of Australia and New Zealand, their current account deficits are close to the same percentage of GDP as is the US current account deficits. And, to my knowledge, the currencies of these countries have not depreciated much, as you would expect with large current account deficits.
On the other hand, all of these countries have higher interest rates than the United States, Japan, or the euro zone. I suspect that those interest rates have allowed those countries to attract private capital to fund their current account deficit, unlike the currency recycling the US has enjoyed with its low interest rates. And I'm not aware of central banks holding significant amounts of pounds sterling or Australian or New Zealand dollars as reserves. But it would be worth doing some research to find out if this is the right explanation.
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marko - Coal
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by MonteQuest » Fri 29 Jul 2005, 20:56:06
$this->bbcode_second_pass_quote('marko', 'T')he question is, what will break, and when?
Yes, that is the question. Good post! It follows what I have been saying since I joined this site. Peak oil is not the only crisis we have to look forward to.
Time to grease the printing presses for a long run. 
A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
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MonteQuest - Expert
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by smiley » Fri 29 Jul 2005, 21:12:52
$this->bbcode_second_pass_quote('', 'H')e argues that East Asian countries are so dependent upon US consumption that they will go on funding the current account deficit until something breaks.
I think this assumption is a mistake. Yes I know that most people would disagree, but I do think that countries like China under certain circumstances will pull the plug even if that means something akin to economical suicide.
You have to understand something about the Asian countries and especially China and that is the importance of pride. Even to suggest that China would be 'dependent' on something or someone would be viewed as an insult in China.
If they want to stop funding the US deficits, they will do that, regardless of the consequences for their own country. If they feel offended by the United states they will retaliate regardless of what will happen.
Don't expect rational decisions from China.
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smiley - Intermediate Crude
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by marko » Sat 30 Jul 2005, 15:05:20
$this->bbcode_second_pass_quote('smiley', '')$this->bbcode_second_pass_quote('', 'H')e argues that East Asian countries are so dependent upon US consumption that they will go on funding the current account deficit until something breaks.
I think this assumption is a mistake. Yes I know that most people would disagree, but I do think that countries like China under certain circumstances will pull the plug even if that means something akin to economical suicide.
The reason that I think that this is unlikely is that pulling the plug on the US would wreck the Chinese economy. I agree that China's leaders might be willing to do that, EXCEPT that their political survival depends on their being able to deliver rising living standards to middle-class Chinese. If the Chinese economy tanks as the result of an action by the Communist leadership, they know that they are likely to face a popular uprising. As it is, violent protests in China are already quite widespread, if not yet coordinated. I think that China's leadership is very unlikely to take the risk of increased violent opposition to their rule.
$this->bbcode_second_pass_quote('smiley', 'Y')ou have to understand something about the Asian countries and especially China and that is the importance of pride. Even to suggest that China would be 'dependent' on something or someone would be viewed as an insult in China.....
I'm sure that they don't see things this way, and if a Chinese person were to see my post, he or she would disagree and say that it is not China that is dependent on the US but the US that is dependent on China. Which is also true. They can maintain the status quo without any risk to their pride.
$this->bbcode_second_pass_quote('smiley', 'D')on't expect rational decisions from China.
Ah, but I do. At this point, apparently most senior officials in the government have an engineering background. I am sure that they have run computer models and figured out their plan of action under any number of different scenarios. Unlike the present government of the US. (Witness the aftermath of the "liberation" of Iraq.)
Let me add, though, that while I don't see China ending the bubble that keeps their economy humming prematurely, I do see China "pulling the plug," or exchanging their dollar assets for whatever physical assets they can get, the minute they see the US consumption machine start to falter. They definitely want to leave Japan holding the bag of worthless dollar assets. China will be the first to get out. In fact, we already see them attempting to use their dollars to buy reserves of metal ores and gold. I expect that trend to grow.
And when the economic collapse does come, I predict that China's government will try to head off popular unrest by launching a series of patriotic wars, beginning with the invasion of Taiwan and followed by conflicts with Japan and other neighbors over the control of probable oil fields in the South China Sea.