But limited supply, oversupply, are legitimate concerns. How can we measure if there's too much (or too little) currency? Hmm, that's a real puzzler...
Interest rates! Usually real inflation rates combined with the interest on that money will determine how much of any currency one wants to hold.
Correct and he often implies that. The way things are going with the Federal Reserve Board, we're moving towards a larger group of "doves" who are on board the whole "unconventional measures" bandwagon. As if five years of ZIRP weren't bad enough...
Exactly...which is why the Yen carry trade persisted for so long. Japan has held rates at or near zero for 20+ years right?
You sure about that one Mav? I think you may have just buzzed the tower. Both Australia (on of the richest nations in the world...maybe their on to something?) and Canada have "commodity currencies"...that is to say, currencies which depend on the export of commodities for a large part of their value. http://en.wikipedia.org/wiki/Commodity_currency http://www.imf.org/external/pubs/ft/fandd/2003/03/cash.htm Libya tried to issue a gold backed dinar. Whoops. Qaddafi got a knife up the *** for that one. When you say our military protects the value of our dollar, you are not far off. Still, the dollar losing its reserve status is not so much of an "if", but a "when"...far from hypothetical at this point.
His point wasn't a hypothetical. Competing currencies would allow commodity-backed money, which the market would prefer, by default. As for the military underwriting the US Dollar - it's more bluster than reality. Will the US attack China if they refuse to roll-over their Treasury holdings? Your argument has some merit when it comes to US dollar pricing of global commodities, but that dynasty is ending quietly, too. Oil deals between Russia and China are negotiated in Yuan. The problem with reserve status, is that in order to maintain it with excessive debt, the US would have to attack the entire world to keep everyone in-line and buying treasuries. Ain't gonna happen. And the world knows it. Our goose is cooked.
And what do you do when the interest rates are held artificially low for a ridiculous amount of time?
Commodity currencies are NOT backed by commodities. Rather the demand for those currencies comes from the demand for those natural resources.