Deflated dollar
In this article it talks how the UN and China want to get away from the dollar as the world monetary currency. There were earlier articles this week about how the Arabs are pushing for a new currency as well. there is even talk of going back on the gold standard. You may ask, so what? How does this affect me? If another currency is chosen or created, the dollar will lose value against other currencies and could inhibit the ability of the country to borrow money. The worse thing that could happen is if the other countries go to the gold standard. We have so leveraged out the dollar that it would deflate the value of the dollar so much that the Peso would look good against it.
I hate to say this, but we need the world to stay on the dollar right now and for our bond rating to stay good. If we lose our bond rating the dollar could be a goner and you will want to invest in wheelbarrow stock as that is what everyone will need to push around their wallet full of worthless dollars.
I hate to say this, but we need the world to stay on the dollar right now and for our bond rating to stay good. If we lose our bond rating the dollar could be a goner and you will want to invest in wheelbarrow stock as that is what everyone will need to push around their wallet full of worthless dollars.
posted by davis14633 at 10:11
4 Comments:
Political posturing.
The currency standard is selected by the market, not by politicos and journalists. The United States still has the healthiest economy, the highest GNP, and the biggest trade volume in the world, (yes it's a deficit, but that's a sign of our spending power, which is a huge factor in economic health).
The Chinese debt makes ours look miniscule by percentage ratio to their GDP and average earning power, while the yuan is heavily propped on US T-bills, (which they're now screaming about; caveat emptor).
The Euro, meanwhile, is floated by a 17% value added tax that has been fanning the traditional flames of hate and discontent between the European nations. Look for a breakdown in civility at the yearly Eurotrash convention.
So let's not be singing any dirges for the dollar just yet; rumors of its demise are greatly exaggerated.
Actually what is probably happening is a little saber rattling from the holders(China and the Arab countries) of most of our debt. They are saying to our president to not go out and overspend or fire up the printing presses to print our way out of a recession. If such steps are taken, a move to a different monetary base could be in the works.
There is precedent (the British pound) to show that when a currency is used as an international base for trade, the originating country has a tendency to overextend itself in debt counting on other countries to want to keep the value inflated for their own monetary gain, but over a period of time (usually a few decades) the leading international currency is replaced and the cycle begins over again.
The real threat is if due to the instability of the monetary market, no one currency is able to dominate and trade moves back to the gold standard. Now Governments would fight it tooth and nail as how most just cant survive under a gold based monetary system right now, but as you said, they may have no choice if the market drags them screaming into it.
There are currently over 571 trillion dollars in circulation. To switch to a gold standard it would take 17 million tons of gold at current prices ($1044.00 an ounce) to buy enough gold to cover our outstanding currency, but there has only been approximately 158 thousand tons of gold mined since recorded time. If this happens, you would see an incredibly large spike in the cost of goods until the dollar could right itself. Talk about a bubble, the money bubble makes the tech and housing bubble seem like beer bubbles in your glass. Now go have a beer and buy more ammo for the bunker :)
Hrm... I see your point, but I'm not sold on the "reversion to gold standard in a crisis" idea. I've always perceived that as a boogey-man held up by the inflationary economists and the talk-radio hosts selling ads for bullion middlemen. Monetary value and stability since the industrial revolution has been increasingly based upon GNP, trade, and other "fluid" factors. Certainly I'm no expert, but I'm a step above the pack of neo-Keynesian idiots in the mainstream press.
Perhaps we could get Vizigoth to chime in on the issue? He's a CFO, and undoubtedly a lot better qualified to comment on the situation than either of us...
I re-read my post and can see where I was maybe a little too much on a street-corner soapbox screaming "the sky was falling" rant.
My main gist of the post was to point out that a continuation of our loose fiscal policies will devalue the dollar and can lead to inflation. It is my opinion, however, that the dollar is losing its strength in the world market and that politicians can either speed it up or slow/reverse the trend based off of their policies, and it is up to us as voters to tell them to stop spending money like they are playing Monopoly.
Post a Comment
<< Home