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  • Our Dollar's Future

    I've been hearing that our dollar may be replaced as the world's reserve currency, and would like to know any thoughts on what this would mean? I have read conflicting opinions ranging from not much happening as a result to further inflation. Not sure if this is part of a plan to stop using our dollar to purchase oil by other countries which is currently the accepted practice.

  • #2
    Re: Our Dollar's Future

    Well, if my own personal experience is any reference to go by, back in 2005, I was able to purchase an 18 carot gold rope necklace for $180 (Mother's day gift and birthday I was forced to miss being overseas) Two weeks ago, I had to fork over $550 for a 14 carot gold rope necklace of the same length. If only my paycheck rose by that magnatude to maintain my spending power. You can imagine my irritation with being forced to work longer to afford the same things.

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    • #3
      Re: Our Dollar's Future

      I know we are dealing with inflation and prices are climbing higher for just about everything, but I was wondering if the dollar is no longer used by other countries as the world currency what the imapct would be? Would inflation rise more, or not?

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      • #4
        Re: Our Dollar's Future

        Originally posted by Frankiarmz View Post
        I know we are dealing with inflation and prices are climbing higher for just about everything, but I was wondering if the dollar is no longer used by other countries as the world currency what the imapct would be? Would inflation rise more, or not?
        Well, whatever the consequences may be, the US federal government felt it necessary to warrent action against Iran for trading oil for Euros. So yeah, it believe the possibility that trading petroleuros will devalue the dollar more is a healthy amount of paranoia indeed.

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        • #5
          Re: Our Dollar's Future

          Not sure of the answer to that Franki. I know that just a couple of years ago there was a bit of controversy over the fact that the some international entertainer insisted on being paid in Euro's rather than American dollars. But since than, the EC has gotten themselves into a bit of a jam and the value of the Euro fell.

          I believe the Dollar is still the preferred currency and our economy is, at least in recent weeks, getting stronger. While a "strong" dollar is great for those holding a lot, it isn't necessarily great for the working class. I remember back a couple of decades ago when the dollar was very strong... my company discovered it was cheaper to buy castings in Europe and elsewhere and it shut down both of it's U.S. foundries, laying off about 300 employees. Many other industries took similar steps.

          With a strong dollar, the buying public could afford to purchase even more foreign-made goods, take vacations abroad, etc. All to the cost of more American jobs. So, IMO, a strong dollar is good for some, but not for others.

          I think the price of gold has little to do with the strength of the dollar though. Our dollars are nothing more than promissary notes issued by the government. It is no longer redeemable for either gold or silver. (You'd probably make money though if you could convert your savings to copper penny's though.) Gold is precently highly inflated, IMO. As economy's fail, more and more people invest in tangeables like gold. Gold in itself doesn't buy anything though, and the game is to sell it at a higher price than you paid.... but if the world economy turns around, we may well see the price of gold drop significantly, as it has before.

          (This past Friday, there was a discussion on NPR regarding the so-called "Gold Standard"... you might find it interesting: http://www.npr.org/blogs/money/2011/...-gold-standard )

          I believe the real factor to the dollar's value is the world's perception of the American economy. In spite of the growth of China and other countries, the American economy is still the healthiest. Not sure how long that will last, but for the short term, we're still ahead in that game.

          When that perception changes, I think we will see a marked difference in our buying power and the value of the dollar will drop like a rock as everybody switches thier currency holdings and investments. Some of us are struggling already as we're competing for resources like oil. A century ago, the economy was much more localized and the rest of the world could falter without it effecting the local farmer who bought supplies and sold his produce locally. Now however, most of the farmers are part of a corporate structure and if they can get a better price in in Asia or Europe, we'll have to pay those those global prices or do without.

          CWS
          Last edited by CWSmith; 02-14-2011, 02:01 AM.

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          • #6
            Re: Our Dollar's Future

            Do not confuse "healthiest" with healthy. A man on his deathbed is still the "healthiest" in a room full of corpses as long as he still has a pulse.
            If you want to see just how "healthy" our economy is, look no further than "Evergreen Solar" out of Massachusetts. This company was supposed to be our state government's Golden Child of American ingenuity. Look what happened to them!

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            • #7
              Re: Our Dollar's Future

              If the US were to lose reserve currency status, I would expect a massive devaluation of the dollar within 6-12 months. We would experience price inflation over this period of possibly a couple hundred percent, or more.

              Right now, due entirely to the dollar's status as the reserve currency, the US enjoys the ability to print money at will, irrespective of our low manufacturing production of exportable goods and services. Our GDP, still the largest in the world, is about 70% related to consumption - not production.

              The dollars that the Government prints up out of thin air and injects into the economy are used to buy stuff like oil and cars and consumer goods from nations that are industrial producers.

              Those dollars are also used to make the principle and interest payments to other countries that hold our debt bonds.

              The problem is that the United States makes very little exportable stuff. There are lots of dollars out there and not much USA stuff to buy. This means that USA stuff is waaaay too expensive. So holders of those dollars use them to buy other stuff they need... like oil from the OPECers, for instance.

              The problem is that if you're say, China... you have to sell a lot of flat screen TVs to get those dollars. Yet when you want to buy some oil from the Saudis, well, that takes a lot of dollars. In essence, they have to make a lot of TVs to get their oil. Now they know that if the dollar wasn't involved, they could get that oil for a lot fewer TVs. It's not a good deal for them, and they're finally waking up to that fact. The US is essentially misusing its reserve currency position and it's not making people happy.

              That's why they're making noise about replacing the dollar as the reserve currency. Our irresponsible monetary policy (printing copious dollars) is essentially exporting price inflation to the countries that are making the goods that we in the US consume.

              A strongly related issue is that the US has been financing its debt by borrowing. Again, our printing money makes each dollar worth less... so we are paying back the loans with inflated dollars that are worth much less.

              This has become a huge issue lately since the US has been running the printing presses nonstop to pay for wars, unemployment benefits, stimulus packages, and exploding entitlements. We also have been holding interest rates low... and to accomplish that means that the Federal Reserve has to increase the money supply.

              Many believe that the Government is actively trying to devalue the dollar. Bernanke says that we don't have inflation but that rhetoric is aimed at the public. He has clearly hugely inflated the money supply. Just look at the price of hard commodities like oil, gold, paltinum, and silver. Dollar have declined in value tremendously over the past decade. Paying back debt with devalued currency is great if you're the borrower... if you're the lender, not so much. Countries that hold a lot of US debt are not real happy about this, either.

              So let's say that the dollar is ousted as the reserve currency. We will have to pay our debts in whatever the new currency is... and we can pretty much guarantee that the dollar will be very weak compared to that currency - since we make very little in the US. Essentially, the tables will have been turned. Everything will get expensive here in the US, since no one will want dollars.

              The effects of the mismanagement of US monetary policy is already being felt. Gold has been on a ten-year tear and is currently $1365 per ounce. One ounce of gold is a little larger than a US quarter. Silver shot up 80% last year. Copper is up (as all buyers of wire and tubing know all too well). Food is way up. Oil is way up. Healthcare costs are way up. Housing is down... and it will stay down for a while, but eventually like any hard asset the price of real estate will shoot up, too.

              And all this is happening while the dollar is still the reserve currency!

              What's most frustrating is when we hear our leader tell us that what we need is bullet trains. Doesn't he get it at all? We don't need more debt financed government boondoggles. Especially ones like a train that probably will never show a positive return, and will take years to implement. He also wants to improve education. I'm all for education, but the results of that won't be felt for 10-20 years. I don't think we have that long. Besides, the Gov'ts approach to education is to throw money at it, and that hasn't been shown to work in the slightest.

              In short... if the dollar loses reserve currency status... we are going to very quickly become a poor country, just like every other country that doesn't have significant industrial production.
              Last edited by Andy_M; 02-14-2011, 02:44 PM.

              Comment


              • #8
                Re: Our Dollar's Future

                Originally posted by Andy_M View Post
                If the US were to lose reserve currency status, I would expect a massive devaluation of the dollar 6-12 months. We would experience price inflation over this period of possibly a couple hundred percent, or more.

                Right now, due entirely to the dollar's status as the reserve currency, the US enjoys the ability to print money at will, irrespective of our low manufacturing production of exportable goods and services. Our GDP, still the largest in the world, is about 70% related to consumption - not production.

                The dollars that the Government prints up out of thin air and injects into the economy are used to buy stuff like oil and cars and consumer goods from nations that are industrial producers.

                Those dollars are also used to make the principle and interest payments to other countries that hold our debt bonds.

                The problem is that the United States makes very little exportable stuff. There are lots of dollars out there and not much USA stuff to buy. This means that USA stuff is waaaay too expensive. So holders of those dollars use them to buy other stuff they need... like oil from the OPECers, for instance.

                The problem is that if you're say, China... you have to sell a lot of flat screen TVs to get those dollars. Yet when you want to buy some oil from the Saudis, well, that takes a lot of dollars. In essence, they have to make a lot of TVs to get their oil. Now they know that if the dollar wasn't involved, they could get that oil for a lot fewer TVs. It's not a good deal for them, and they're finally waking up to that fact. The US is essentially misusing its reserve currency position and it's not making people happy.

                That's why they're making noise about replacing the dollar as the reserve currency. Our irresponsible monetary policy (printing copious dollars) is essentially exporting price inflation to the countries that are making the goods that we in the US consume.

                A strongly related issue is that the US has been financing its debt by borrowing. Again, our printing money makes each dollar worth less... so we are paying back the loans with inflated dollars that are worth much less.

                This has become a huge issue lately since the US has been running the printing presses nonstop to pay for wars, unemployment benefits, stimulus packages, and exploding entitlements. We also have been holding interest rates low... and to accomplish that means that the Federal Reserve has to increase the money supply.

                Many believe that the Government is actively trying to devalue the dollar. Bernanke says that we don't have inflation but that rhetoric is aimed at the public. He has clearly hugely inflated the money supply. Just look at the price of hard commodities like oil, gold, paltinum, and silver. Dollar have declined in value tremendously over the past decade. Paying back debt with devalued currency is great if you're the borrower... if you're the lender, not so much. Countries that hold a lot of US debt are not real happy about this, either.

                So let's say that the dollar is ousted as the reserve currency. We will have to pay our debts in whatever the new currency is... and we can pretty much guarantee that the dollar will be very weak compared to that currency - since we make very little in the US. Essentially, the tables will have been turned. Everything will get expensive here in the US, since no one will want dollars.

                The effects of the mismanagement of US monetary policy is already being felt. Gold has been on a ten-year tear and is currently $1365 per ounce. One ounce of gold is a little larger than a US quarter. Silver shot up 80% last year. Copper is up (as all buyers of wire and tubing know all too well). Food is way up. Oil is way up. Healthcare costs are way up. Housing is down... and it will stay down for a while, but eventually like any hard asset the price of real estate will shoot up, too.

                And all this is happening while the dollar is still the reserve currency!

                What's most frustrating is when we hear our leader tell us that what we need is bullet trains. Doesn't he get it at all? We don't need more debt financed government boondoggles. Especially ones like a train that probably will never show a positive return, and will take years to implement. He also wants to improve education. I'm all for education, but the results of that won't be felt for 10-20 years. I don't think we have that long. Besides, the Gov'ts approach to education is to throw money at it, and that hasn't been shown to work in the slightest.

                In short... if the dollar loses reserve currency status... we are going to very quickly become a poor country, just like every other country that doesn't have significant industrial production.
                Andy, that was a very well thought and thorough post, thank you. Your opinions and projections are very concerning. I remember reading about a plan by france, china, russia and a few other countries to replace the dollar as the curency by which to purchase oil as far back as last summer. I think the bill for carelessly printing money instead of working to revive our economy will come due, just as all our consumer debt will also reach a breaking point. I find Presidnet Obama's grand speeches baseless, china is busy creating the green jobs, further more we have plenty of highly educated young people graduating college and not finding jobs. What does our President expect the many millions of unemployed Americans to do in the near term? They cannot acheive higher education and if they could instantly become college graduates, there would be no jobs for them.

                I appreciate the feedback to my question, but I fear if the dollar is replaced it and we are in for more troubled times. Do we project the fate of the dollar and our economy on hopes or reality?

                I am glad to see our legislators finally working to reduce spending and tighten the belt, but there seems to be no plan at all to grow jobs and turn the economy around. A starving family can only reduce their food intake so much, there comes a time when they must plant, hunt or die!

                Comment


                • #9
                  Re: Our Dollar's Future

                  Obama's talking up his new budget this morning.

                  It's $3.73 trillion.

                  In other words, not much different than budgets that have gotten us into this mess.

                  They continue, as near as I can tell, to treat the wars as so-called "off-budget" expenses. Which means only that they don't include them in the government budget. How convenient. Still gotta pay for them just the same. Such manuevers are just more examples of how our Gov't has taken to lying to us.

                  At the same time, due to massive unemployment (government statistics distort and understate the magnitude of the unemployment problem), underemployment and declining wages in many industries, government revenue will decrease.

                  Same spending, less revenue = the deficit will get worse.

                  These numbskulls are still proposing bullet trains and other silly measures that are going to do nothing except be financed by more debt.

                  Gold and silver are up. I disagree strongly with the idea that those commodities are in a bubble. Those metals, along with other hard commodities like oil, are the basis for establishing the value of the currency... and, in the case of gold, has been for about 5000 years. When the price of hard commodities measured in terms of each other, the hard commodities have been comparatively stable. Commodities are only increasing in price when the price is quoted in unconvertible fiat currencies such as dollars or euros. The actual value of an ounce of gold hasn't changed.... it's the value of the paper money that has declined! And based on this budget, the lack of any real plan by the Gov't to get this economic mess straightened out, Bernanke's comments on the Federal Reserve's plans last week.... there is no end to the madness in sight.

                  Don't be fooled by Gov't claims that unemployment is down. It is NOT DOWN. Look at the timing.... the recent reported drop in unemployment is due to the fact that it has been about 2 years since the mass jobless started (banking crisis hit in last quarter of 2008). Unemployment benefits last 99 weeks - just under two years. After that, folks without jobs are not counted! Real unemployment is not falling, the numbers simply are a reflection of the fact that the 99 weeks are running out for large numbers of unemployed people. I believe that unemployment is actually still rising.

                  Invest in hard commodities and food futures, and strong foreign companies. It is not smart to be in cash or dollar-based assets.
                  Last edited by Andy_M; 02-14-2011, 02:51 PM.

                  Comment


                  • #10
                    Re: Our Dollar's Future

                    Originally posted by CWSmith View Post
                    (This past Friday, there was a discussion on NPR regarding the so-called "Gold Standard"... you might find it interesting: http://www.npr.org/blogs/money/2011/...-gold-standard )

                    CWS
                    Thanks for the link. I happen to agree 110% with Jim Grant.

                    The counterpoint, arguing against the gold standard, was offered by Professor Randall Parker. He claims that a gold standard precludes government intervention to mitigate economic crises.

                    Parker's is the classical Keynesian philosophy: that central government or banks can and should manipulate the economy. Unquestionably, this manipulation does have a huge effect on the economy. The problem is, it has historically proven to work to the detriment of the public and the nation as a whole, and the strong benefit of the few that control the manipulation.

                    Parker argues that taking the US off the gold standard in the 1930s got us out of the great depression. First of all, I had to laugh, because the good professor apparently doesn't even have his history straight. The dollar was not removed from the gold standard in the 1930s. Roosevelt attempted to confiscate gold from private citizens,and made it illegal to hold gold other than for jewelry or numismatics in 1933 - effectively eliminating the convertibility of Federal Reserve notes to gold for citizens. The United States, however, remained on the gold standard, and foreign interest COULD redeem their dolars for physical gold and silver. In the mid 1940s, the US dollar was agreed to as the world's reserve currency (the Bretton Woods agreement), based on our very large (dominant) role in world trade and the fact that we had stable currency that was valued at $35 per ounce of gold. Again, during this time, while US citizens couldn't redeem their paper dollars for gold, foreign interests COULD. We were most definitely ON THE GOLD STANDARD, and so were the rest of the Bretton Woods partiicipants, via our gold-backed dollar. The fact is that the US didn't go off the gold standard until 1971, when Nixon was forced to do it to protect against a looming run on US gold reserves by foreign interests that were unhappy with our monetary policy and how we were funding certain debt. Recall that the Viet Nam war was explicitly NOT funded by either tax increases or war bond sales. This was a political choice, and in many ways nmarked the beginning of the end of the US economy.

                    My point is that right off the bat, Dr. Parker, economic professor, is already completely off base and apparently doesn't have the simple facts straight... namely that the US was on the gold standard until 1971. Look it up!

                    Dr. Parker's argument that government intervention ended the great depression doesn't hold water. Fact is, essentially all of Roosevelt's stimuli and work programs had no effect on the depression, except to very probably make it worse by increasing the size of government and loading yet another burden on the taxpayer. The Great Depression ended when the US entered WWII, and it did so due to employment. A mass quantity of people went off to war, and thus were not part of an unemployed workforce. Those that remained were put to work building war materials. At the same time, taxes were increased dramatically. That's what ended the Great Depression.

                    It is often overlooked that in the US, there was a major recession that hit in approx 1920. At the time, the government did nothing. No stimuli, no CCC, no WPA. Free market forces were allowed to work, and the economy corrected itself by mid 1921. Amazing! Who would have thought that the free market could self correct with no government meddling, based on the basic principles of economics. On the other hand, when the market crashed in 1929, the Federal Reserve stepped in. Many people think that the 1929 crash started the Great Depression... but it isn't so! The economy didn't really tank until about 18 months later, after the Fed had a chance to screw it all up. And while the revisionist historians can spin the recovery any way they want, the truth is that government and Federal Reserve actions effectively precluded free market forces from stabilizing the economy.

                    For example, most (except, apparently, Dr. Randall Parker) know that FDR confiscated gold and ended the redeemability of Federal Reserve notes for gold in 1933. By this time the Great Depression was well underway. What most don't remember is that right after he made this (illegal) move, he redefined the valuation of the dollar by raising the price of gold dramatically (from $20 to $35). Since foreign interests could still redeem their dollars for physical gold, this massive devaluation was supposed to make exports more attractive, but unfortunately what it did was sink the US economy even further. Don't agree with me? It's all in the history books... look it up! Of course, this devaluation of the dollar in terms of gold essentially made the real value of savings in the US drop by ((35-20)/35) = 0.43 or 43%. Thank you Uncle Sam. FDR's change in the price of gold was a huge tax applied to Americans that had worked hard and built up some savings.

                    Here's a couple of other things that you might find interesting. A smart fellow name of Thomas Jefferson warned vigorously and relentlessly of the dangers of central banks. As usual, TJ has proven to be the American nostradamus - everything he warned against has happened.

                    The US Constitution says that only Gold and Silver can be money. This was not because Madison et al were stupid or traditionalists. It is because they fully understood the fallacy of fiat money.

                    The US Constitution also states that ONLY Congress has the authority to create federal money. In 1913, a consortium of rich bankers finagled their way into the creation of the Federal Reserve Bank, a privately owned central bank that has the authority to create money. The Federal Reserve does not need any approval to print money, and they do not answer to anyone - not the Congress, and not the President. They can buy, loan or give money to anyone, including US banks, US corporations, foreign banks, foreign corporations, or foreign governments... and they do so. According to the Federal Reserve Act, the Congress doesn't even have the authority to audit their actions execpt in peripheral areas that don't really matter. Yes, that's actually true. The Congress does not know what the Federal Reserve is doing with the money that they create out of thin air. But since the Fed acts to facilitate the massive irresponsible spending of the Government, the madness continues. To wit, House bill HR1207, which was introduced in 2009 and required a simple audit of the Federal Reserve, was supported by over 310 members of the House, but died in committee. Doesn't that sound a little wrong to you?

                    It's also a fact that the purchasing power (value) of the United States dollar has declined 95% since the Federal Reserve was created. 95%!

                    The 95% decline corresponds with the most massive transfer of wealth in history. This is the so-called "disappearing middle class". We all see that the rich are getting richer while most everyone else is getting poorer. This is not the result of the world becoming less wealthy overall. This is the result of monetary manipulations that systematically rob you of your wealth by devaluation of the currency.

                    These larcenous manipulations simply COULDN'T happen if the money was gold, or backed by gold. All the gold ever mined will fit in a cube about 22 meters on a side, and more than 95 percent of all of it is still around.

                    Let's think about this for a second. If the money supply was fixed, then as humanity gets better and better at making stuff due to improving processes and technology, there will be more stuff made and prices should GO DOWN.

                    Hmmmm.... this also means that as humanity gets better and better at making stuff, and as automation takes over for labor, we should have to work LESS and LESS to supply the world with the stuff it needs. Wages should go up, and people should have to work less!

                    But what is actually happening? With the worldwide paper money system, things are getting more expensive, and workers are having to work more to survive. Most families now have both adults working. This is the same as the standard of living for the majority declining. We see industry systematically exploiting third-world countries (oops, they are now called "emerging economies") and ABANDONING past workforces... like those in Japan, Europe and... the United States. In all these places, they are telling us that we can't retire at 65. We have to work longer. It's happened in Europe and it's happening here. Even if the Government doesn't officially change the social security retirement age, they will de facto change it by devaluing savings so that people CAN'T retire - they won't have the money.

                    So most people are in fact working harder, longer, smarter... but getting poorer. All the efforts to get an education and/or build skills are serving the masters, but not serving the people.

                    Every bit of wealth that you and I lose must end up somewhere. It doesn't evaporate. It's going into the pockets of people that MAKE NOTHING... namely, those that control the currency - the Keynesian control freak, anti-free-market, fiat currency defenders that dominate Government and global banking. We are working for them.

                    Take look at the United States' balance of trade from say, 1900 until 1970 (be aware of the wars ), and then from 1971 to present. Recall that the US (despite Dr. Parker's misinformation) went completely off the gold standard in 1971. I don't think the relationship between our economic performance and this event are coincidental.

                    The mistake that a lot of people make when trying to understand currency and gold is that they conclude that gold has no real value since you can't eat it or heat your home with it. That's not the point at all. Gold has value as currency because there is only so much of it, and because it is one of the most permanent commodities on earth... it isn't consumed and it doesn't corrode or otherwise spoil. That little fact is recognized and valued universally, and has been for 5000 years. Gold is mined in very small quantities -- as I mentioned, all the gold that ever has been mined amounts to a cube about 22m on a side. If the currency was actually an asset like this, then you have effectively hamstrung the money changers from executing the little shenanigans and manipulations that have systematically robbed you of your wealth. It's not about gold being useful or not useful.... it's about it being RARE and not subject to spoilage. Gold is gold is gold.

                    Now of course, if your business if to manipulate currency, then you are going to be a big fan of non-gold backed paper money. With such a system, you don't have to actually make anything of value! You simply print some paper, and buy some hard assets (like gold or silver or pork bellies or whatever). Since you printed the money,all you have to do is wait a little while, and the market will devalue that paper money and make the assets you bought go up in value. Then you do it again. And again. That's how the rich are getting richer, and you're not. Now, the bankers couldn't do that if the money in use was acually gold... or a gold-backed currency, such as we had until April of 1933.

                    So of course it will be unpopular to suggest a return to a gold backed currency.

                    It's fine with me. If you can't beat 'em, join 'em. Gold and several other commodities are on a tear, and have been for a long time (gold has gone up steadily for ten years).

                    If any of this makes sense to you... just be smart about what you invest in. Commodities that are easily mined are not going to behave like gold. Commodities that have industrial value are going to drop in value if industrial demand drops, such as it might in a global recession. Be careful, don't believe everything you read or hear. Especially from so-called economists, like Randall Parker.
                    Last edited by Andy_M; 02-14-2011, 11:00 PM.

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