BREAKING NEWS: Dollar loses reserve status to yen & euro

Discussion in 'Economics' started by sub0, Oct 13, 2009.

  1. achilles28

    achilles28

    You've made a few assumptions that are wrong.

    First, commodities are priced in dollars. Regardless if competitive devaluation holds - and that's a Big IF - commodities will appreciate drastically from across-the-board debasement. Sky high commodities equal inflation for everyone.

    Second, the assumption China, Japan, EU and Asia will continue to debase lock-step with America is questionable. Europe and Japan are Democracies. When their voters taste high inflation thanks to easy money, they'll demand "something be done".

    Third, America has one more credit bubble left and then a long slog of repayment and restrained consumption. The Glory Days of America being the Economic Engine of the World are predicted on stratospheric consumer debt and overconsumption. The next bubble (perhaps equities?) will implode enough rookies and 401'kers to put the brakes on whats left of this debt-based economy. When that happens (in a few years), the prospect of America being the Worlds shopping mall, will end. Overconsumption will be met with drastic underconsumption to pay down all that debt incurred, heretofore. Throw in high inflation thanks to debasement, and the payback cycle gets pushed forward another 5-8 years.

    It all comes down to relative performance. Do the Chinese tie themselves to America, and go down with the ship? Or settle for suboptimal growth, with a stable economy? They'll make the right choice. So will everyone else.
     
    #41     Oct 14, 2009
  2. You got it. Volcker is a party wrecker, something the politicians need. But he is in his eighties and I bet he wants no part of this.
     
    #42     Oct 14, 2009
  3. achilles28

    achilles28

    That's right. The sun is setting on American over-consumption. We just blew our wad on HELOC's, credit card debt, and home loans. Now its time to pay it back = underconsumption for the next 3-5 years. If we get another bubble (in equities?), more wealth gets destroyed. Then consumption gets derailed for another 5 to 8.

    In meantime, Asian exporters might rethink their trade partners and let their own currencies free float. China is already #2...
     
    #43     Oct 14, 2009
  4. achilles28

    achilles28

    Thanks.

    I can totally see the Treasury nixing the dollar for a "regional" currency, then pulling an FDR (2$ per Amero pre-bank Holiday. Then 1$ per Amero post-bank Holiday.)

    FDR debased some 42%. Very possible. Makes it easier to pay down all the debts they've run up!
     
    #44     Oct 14, 2009
  5. In addition, the new Japanese government is thinking only buy yen dominated debts further away from its tie to US debts.

    Take a closer look at East Asian, it has changed so much people don't realize until too late, we are talking about East Asian, not Latino American, where you can put up coupe like Honduras. Well, the nice thing about it, they didn't wack Manuel Zelaya like they used to do in 70s and 80s. lol
     
    #45     Oct 14, 2009

  6. you are not making any sense.

    why underconsumption now if access to money havent been as easy it is today?

    why wealth is destroyed if equities bubble? wealth is only transfered among peers in the stock market whether rising or falling.

    why exporters would let their currencies free float and hence lose competitiveness and put at risk their own economies due to that?
     
    #46     Oct 14, 2009
  7. LMAO

    the deficits in the other economic zones (with the exception of japan due to their anemic economy) are even bigger than in the US.

    so i guess they are going to do the same thing with the Euro, GBP etc?

    what up with up guys?

    cant you see that doesnt make any sense?

    the amount of debt will always increase and new money will always be printed to pay off the existing debt. it is just business as usual.

    as long as the US is one of the top 3 economic zones in the world(NOW 1ST), there is no way the USD is trashed.
     
    #47     Oct 14, 2009
  8. achilles28

    achilles28


    Underconsumption because Americans took on too much debt. Now, they must pay it back (interest + principle). This equates to reduced disposable income. What happens when you borrow money just for consumption? You spend more than you earn. What happens when you pay it back? You must spend less than you earn (pay back interest + principle). The debt repayment cycle goes a long way to explaining economic expansion and contraction. And by proxy, market bulls and busts. We overconsume during periods of increased debt creation (bull market). Then underconsume during periods of debt repayment (bear market). Which is why the market oscillates to such extremes...

    Bubbles destroy wealth by creating debt at valuations the economy can't support. Home prices or equities, doesn't matter. If DOW goes to 20K, it'll look like the Chinese stock market, where half of all loans made by banks chase better returns in the market. Like the crash of 1929, when the market collapses (and it always does), "investors" will be on the hook for hundreds of billions in principle collateralized by stock valuations worth 50-80% less than the principle originally invested. Hopefully, not leveraged. So now, if we get an equity bubble (then crash), investors will have MORE DEBT to pay down from market returns that collapsed. In terms of real equity.

    The markets being a zero sum game doesn't mean bubbles are good for the economy. Bubbles screw the middle class/average consumer, while enriching investment banks and speculators that can see the hammer before it drops. Economies like Mexico where wealth is concentrated in the hands of the few, create material prosperity for none. A broad-based middle class is key to strong consumption and a strong economy. Bubbles wipe out and destroy middle class wealth, thereby weakening the economy. Which is exactly what happened with housing and explains present economic conditions in America.

    Exporters will float their currency once American consumers get so heavily indebted, they can no longer consume at prior levels. This is happening already. Another bubble could seal our fate on demand side. Supply side, 0% interest rates and massive quantitative easing spell big inflation in the medium term for America (and any Country dumb enough to peg their currency to ours). IF we get another bubble, the American consumer will have to contend with a dual assault - high personal debt and massive inflation. Disposable incomes will decline precipitously. Foreigners will have to make a decision to import American inflation (and destabilize their economies at the outrage of voters) for far less return, or depeg, let their currencies free float, and accept a New Normal. Its all relative. Asian countries enjoy a high personal savings rate. They haven't learned to mortgage their futures via consumer credit, like we have in the West (a hallmark of Western Capitalism). Japan, China, Taiwan and Singapore could realistically introduce consumer credit to offset collapsing overseas demand, if they chose to depeg. Very real possibility as China (and Japan) are not as dumb as we think (or need).
     
    #48     Oct 14, 2009
  9. achilles28

    achilles28

    It seems you don't understand supply-side economics or the impact of deficit spending (debt) on GDP (or currency value).

    When everyone debases equally, commodities (and inflation), sky-rocket. Floating huge deficits makes it impossible to raise rates - and therefore, ensures future inflation via monetization - down the road. Both of those facts mean the USD is toast. And any Country that ties itself to it.
     
    #49     Oct 14, 2009
  10. US is a debtor nation (it was not in the 1980's).
    More money printed equals more and more debt that we are not paying back as revenues fall further and further behind.
    Add increasing interest rates on top of the ever increasing debt and what do you think is going to happen eventually?
    Nothing?
     
    #50     Oct 14, 2009