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Sun is setting on the US Dollar as the world's informal, reserve currency

Discussion in 'Preparedness & Survival' started by ATCclears, Oct 14, 2013.

  1. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    Keep preparing...

    Peter


    The sun is setting on dollar supremacy, and with it, American power - Telegraph

    All great empires – from the Greek, to the Roman, the Spanish and the British - have at their heart a dominant means of exchange which is very much part of their political and social hegemony. Once upon a time, it was Roman coinage which was the world's pre-eminent currency. In more recent times it was the British pound. Today, it's the US dollar to which international investors flock as a safe haven for their money. Highly liquid and apparently reliable – until recently at least – nothing else comes even remotely close to the greenback's dominant position in the international monetary system.

    That this position – what Giscard d'Estaing referred to as America's "exorbitant privilege" – could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane.

    With the pound, the fall from grace was swift. Britain emerged from the devastation of the First World War an irreparably damaged economic and military power, with crushing debts and a deeply impaired manufacturing sector.

    The dollar was able quickly to usurp the pound's position. Final defeat for sterling came with Britain's decision to leave the gold standard in 1931 – an economically sensible decision but a psychological turning point for sterling from which it never recovered.

    Lack of any credible alternative means it won't happen so quickly with the dollar. For all the progress of the last 30 years, China for now remains a much smaller economy than the US and in any case is nowhere near ready financially to assume such a role. As for the euro, the dollar needn't trouble itself much about this one-time pretender to the throne.

    Yet rarely before has international dissatisfaction with the dollar's role as reserve currency to the world been as great as it is now. The most visible anger comes from China, with more than $3 trillion of dollar foreign exchange reserves, $1.3 trillion of them held in US Treasuries. For ordinary Chinese, it has come as a revelation to discover they own so much American debt. That they own it in a country which because of political brinkmanship may actually default has provoked understandable fury.

    "It is perhaps a good time for the befuddled world to start considering building a de-Americanised world", China's official government news agency has said.

    A steady erosion of trust which began with the financial crisis five years ago has reached apparent breaking point with the pantomime antics on Capitol Hill. The search for long-term alternatives to the dollar is on as never before. Regrettably, there aren't any, or not for the time being in any case. Everyone can only look on in horror as the US commits apparent economic suicide.

    Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. More than 60pc of global foreign exchange reserves are held in US dollars, which also account for more than 80 per cent of global foreign exchange trading.

    So important is dollar liquidity in global trade that if, for instance, you wanted to sell Singapore dollars and buy South African rand, your forex dealer would first typically buy US dollars with your Singapore dollars and then use them to buy the South African rand. The dollar is the middle currency in the vast bulk of international transactions.

    By the same token, US Treasuries are the very backbone of the global financial system. They are the supposed "risk-free asset" against which everything else is benchmarked, and as such are the collateral of choice in a huge array of financial market transactions. The dollar is also the currency used to price most commodities, from oil to gold.

    The dollar's hegemony is all pervasive. This has given the greenback a degree of leverage unmatched by any other reserve currency in history. If China starts to sell dollar assets, it will only weaken the dollar, undermining Chinese exports and reducing the value of its remaining portfolio of dollar assets.

    I'd been part of the received wisdom that any act of US default would set off a devastating chain reaction of bankruptcies that would provoke a second global financial crisis. But David Bloom, chief currency strategist at HSBC, has convinced me that dollar hegemony might perversely act in the opposite way, at least initially.

    Unlike a generalised credit event, where all instruments default at the same time, the US would initially engage in a series of little, self contained defaults, or "selective defaults", whose individual impact would probably not be that great.

    Each bond has a life and coupon of its own. The missed coupon payment might therefore be regarded as not so bad – especially as this is a case of "won't pay", rather than "can't pay".

    Markets see such defaults differently, with missed payments expected to be made up eventually once a political resolution is found. It's also very likely that the Federal Reserve would attempt to counter the damage in financial markets with more QE, buying up the Treasuries that investors dumped.

    Furthermore, the financial uncertainty created by default would likely drive investors towards past safe havens of choice – in particular, US dollar assets. Alternative safe havens, such as Japan and Switzerland, have been rendered defunct by central bank money printing. Ironically, emerging markets are likely be more damaged by default than the US itself, with further capital flight.

    Such is the degree of "exorbitant privilege" enjoyed by the dollar that it might therefore be the first currency in history to see an asset price rally on the back of a default. However, if there were repeated selective defaults, a second, less benign phase would eventually set in. Spooked markets would begin to sell off the dollar.

    The consequent stronger euro and pound would have powerfully deflationary consequences for Europe. Internal demand in the US would also collapse as a result of the wrenching fiscal squeeze that would result from federal government attempts to match expenditures with tax revenues.

    Dollar hegemony has long been a destabilising force at the centre of the international monetary system; it's a major part of the sharp build-up in global current account imbalances and cross border capital flows that have been at the heart of so many of the problems in the world economy. The unprecedented accumulation of dollar foreign exchange reserves has in turn caused new challenges for the US, making it more difficult to maintain fiscal and financial stability within its own borders.

    Policies that may or may not be good for the US are in all probability bad for everyone else. Loose monetary policy in the US since the crisis began has induced unwanted demand and asset bubbles elsewhere in the world.

    Serious alternatives to the dollar, such as a global reserve currency, are still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed and added momentum. The US is wrecklessly throwing away its future.
     
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  2. erudne

    erudne The Pie Matrix PPL Say Sleeping W/Your Rifle Is A bad Thing? Bronze Supporter

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  3. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    I saw a lot of "feathers and dust" in Congress in the past two weeks, but neither party mentioned a budget and sticking to it. The Democrats are focused on social spending, and one might say the Republicans are focused on spending such as the war machine. We have not had a budget since 2009.

    For clarity, I favor neither party.

    Peter
     
  4. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    #1 The U.S. national debt is on pace to more than double during Obama’s eight years in the White House. In other words, under Barack Obama the United States will accumulate more debt than it did under all of the other presidents in U.S. history combined.

    #2 During fiscal year 2013, the U.S. Treasury paid off $7,546,726,000,000 in maturing U.S. government debt and issued $8,323,949,000,000 in new debt. In fiscal year 2014 those numbers will be even larger.

    #3 In September, the average rate of interest on the government’s marketable debt was 1.981 percent. In January 2000, the average rate of interest on the government’s marketable debt was 6.620 percent. If we got back to that level today, it would collapse our entire financial system.

    #4 Between 2008 and 2012, the ratio of government debt to government income increased from 4.0 to 6.6.

    #5 Between 2008 and 2012, U.S. government debt grew by 60.7 percent, but U.S. GDP only grew by a total of about 8.5 percent during that entire time period.

    #6 Since 2007, the U.S. debt to GDP ratio has increased from 66.6 percent to 101.6 percent.

    #7 A revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

    #8 At this point, the federal government hands out money to approximately 128 million Americans every single month. In case you were wondering, that is about 41.3 percent of the population of the entire country.

    #9 Back in 1980, the U.S. national debt was less than one trillion dollars. Today, it is rapidly approaching 17 trillion dollars.

    #10 Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

    #11 During Barack Obama’s first four years in the White House, the amount of new debt accumulated by the federal government breaks down to approximately $50,521 for every single household in the United States.

    #12 The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

    #13 At this point, the United States government is responsible for about a third of all the government debt in the entire world.

    #14 According to the U.S. Treasury, foreigners hold approximately 5.6 trillion dollars of our debt.

    #15 The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

    #16 If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

    #17 As I noted recently, if the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator 45 times.

    #18 How much money is one trillion dollars? If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

    #19 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

    #20 If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 189,000 years to pay it off.

    #21 The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first established in 1913.

    #22 If Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

    #23 The federal government is stealing close to 100 million dollars from our children and our grandchildren every single hour of every single day.

    #24 Historically, the interest rate on 10 year U.S. Treasuries has averaged 6.68 percent. If the average interest rate on U.S. government debt rose to that level today, the U.S. government would find itself spending more than a trillion dollars per year just on interest on the national debt.

    #25 Federal spending on entitlement programs has been increasing six times faster than population growth has.

    #26 Overall, the federal government runs nearly 80 different “means-tested welfare programs“, and almost all of them are experiencing explosive growth.

    #27 According to a Government Accountability Office report that was released earlier this year, Obamacare is going to cause the federal debt to rise by $6.2 trillion.

    #28 If you can believe it, today more than 70 million Americans are on Medicaid, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

    #29 As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

    #30 Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years. That comes to approximately $328,404 for each and every household in the United States.

    #31 It is being projected that the number of Americans on Social Security will rise from about 62 million today to more than 100 million in 25 years.

    #32 Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

    #33 Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay. Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”. His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

    Our financial situation is clearly not even close to sustainable. We are heading for an inevitable collapse, but in the aftermath of the “deal” in Congress, Barack Obama declared that all Americans “need to stop focusing on the lobbyists, and the bloggers, and the talking heads on radio”. Apparently he does not want you reading articles like this or listening to radio programs that are warning about the dangers of our national debt.

    At the same time, the U.S. government continues to waste money in some of the most bizarre ways imaginable. It is almost as if they don’t even care that they are destroying the future of our children and our grandchildren with their incredibly reckless spending.

    And of course the mainstream media is very much on the side of the big spenders. In recent weeks, those that identify themselves with the Tea Party have been endlessly called names on the big mainstream news networks even though they are just about the only ones that are trying to pull us back from the path to self-destruction that we are on.

    The big mainstream news networks have portrayed those that identify with the Tea Party as idiots and morons, but the truth is that studies have found that Tea Partiers are better educated, more scientifically literate and have higher incomes than the general population.

    The real idiots and morons are the ones that want us to continue down this road to financial oblivion. We have accumulated the largest mountain of debt in the history of the world, and unless something dramatic is done, America is not going to have any kind of a future.

    - Economic Collapse Blog
     
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  5. Blitzkrieg

    Blitzkrieg WA Well-Known Member

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    Money here in 2013:

    Food storage

    Ammo

    Weapons and tools

    Supplies/survival gear

    Location, location, location with water and fuel for heating
     
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  6. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    .. and more direct to the OP subject --

    If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy.

    Demand for the U.S. dollar and U.S. debt would drop like a rock, and prices on the things that we buy every day would soar. At that point you could forget about cheap gasoline or cheap Chinese imports. Our entire way of life depends on the U.S. dollar being the primary reserve currency of the world and being able to import things very inexpensively.

    If the rest of the world (led by China) starts to reject the U.S. dollar, it would result in a massive tsunami of currency coming back to our shores and a very painful adjustment in our standard of living. Today, most U.S. currency is actually used outside of the United States. If someday that changes and we are no longer able to export our inflation that is going to mean big trouble for us.

    The fact that we get to print up giant mountains of money and virtually everyone around the world uses it has been a huge boon for the U.S. economy.

    When that changes, the word "catastrophic" is not going to be nearly strong enough to describe what is going to happen.

    According to a Rasmussen Reports survey that was released this week, only 13 percent of all Americans believe that the country is on the right track. But the truth is that these are the good times. The American people haven't seen anything yet.

    Someday people will look back and desperately wish that they could go back to the "good old days" of 2012 and 2013. This is about as good as things are going to get, and it is only downhill from here.
     
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  7. erudne

    erudne The Pie Matrix PPL Say Sleeping W/Your Rifle Is A bad Thing? Bronze Supporter

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    America can survive a crashed dollar
    It cannot survive Marxism, and that's what America faces today, a Marxist inspired class war, a Cultural Revolution that will be portrayed as a Class Struggle but which is actually a genocidal war against America.
    In 2009 I had one of 'those moments' when I realized that my nation was on the brink of being overthrown.
    Today I have had a similar moment. The overthrow is all but complete, soon will come the Mopping-Up period. Increased power and communication outages, sky-rocketing costs for all basic necessities. MASSIVE unemployment and civil unrest, targeted drone strikes, food shortages that last for months. Potential leaders will Disappear. Nothing will stop the overthrow of Western Civilization short of a nation wide re-awakening.
     
  8. Classic

    Classic Federal Way WA Well-Known Member

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    Been watching the dollar vs gold, the euro and the pound for many years. Granted the balance of the world has been devaluing their currency as fast as the US but under the Bush administration the Euro was $1.60 to the Dollar and the pound hit $1.80. Gold 3 years ago was well over 1800 so it has been worse.... Under the Odumbo regime it has been worse but because of Greece, Portugal & Spain the Euro at one point was down to 1.16 and the Pound was under 1.50 so they are starting to let it get away from them again... Buy gold and oil, it's cheap again!!!
     
  9. erudne

    erudne The Pie Matrix PPL Say Sleeping W/Your Rifle Is A bad Thing? Bronze Supporter

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    I'm looking at a 10% hair cut on accounts above X dollars (to start) then huge 'fees' for all transactions of any type-end game is to destroy capitalism
    "Investments" will be wiped out
    cash and gold will be next
    then your home
    then food
    then clothing, to include shoes
    Once your poor, naked, sick, starved and homeless you will be handed a shovel and told where to dig.
    Just Wiki "Spanish Civil War"
    That is where Obama lives, he gets wood thinking about it.
     
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  10. EZLivin

    EZLivin SW of PDX Well-Known Member

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    Ok... gotta say it.... I am appalled by the constant, consistently fatalistic, white-flag waving, "bend me over and stick it to me sir" pervasive mentality around here! Is it because we can't say anything beyond "bubblegum" here so nobody bothers saying what they really think? Or is it because all (well, almost all) you guys are direct DNA-cloned descendants of those pansy-a&&d fockers who ran north in the 1770s when they figured out that some people here were actually going to do something about King George?

    (Ok... probably should have posted this rant on one of those other "we are all doomed" threads instead, but this thread sort of goes in that direction. Seriously - why is there more, er, resistance to what is happening expressed over on ZeroHedge than here on a firearms forum?)
     
  11. peetar

    peetar Kitsap County Active Member

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    I personally do not think that hte dollar will suddenly collapse or the economy. I think it will take at least 30 yrs or so for the decline to make america irrelevant. Having said that, we are in very grave trouble that CAN be turned around. It can happen with a massive uprising. The government honestly believes it's in control. that is hilarious.
     
  12. Jammer Six

    Jammer Six North Greenlake, Seattle New Member

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    Too long, didn't read.
     
  13. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    Either we will succeed in protecting the dollar with our bombs or not, simple as that.
     
  14. MikeE

    MikeE Portland Well-Known Member

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    The OP was about the dollar as world reserve currency. The issue in the article was about the international reaction to the brinksmanship that CongressionalTea party a--hats engaged in around default.
    The federal debt is another issue. As a drag on our economy, personal and business debt is a worse problem.
     
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  15. donMiguel

    donMiguel SouthKingWA Active Member

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    Fascinating. Repost of the apocaplypse blog replicated here: Irani TV

    When your and every other economy are experiencing stress, it is sufficient to be the best of the lot. You become the choice for stability /reserves which enables immense power ("exorbitant privilege"), and reduced costs. Yes, the debt trajectory requires adjustment. Yes, that will include a reduction in expenditures and an increase in taxes. tax-facts-lowest-rates-in-30-years Pay the debt down, and then decrease taxes.

    The simple threat to blow the whole thing up is enough to disperse the perceived stability and increase the cost of all financial transactions, from servicing the debt to financing your home or car. To attempt to manifest the destruction (debt default) is sociopathic or ignorant. Neither trait is appropriate to a leader.

    Adherence to dogma that prevents an equitable solution is equally inappropriate.
     
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  16. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    Brutus57 and (deleted member) like this.
  17. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    If the effects of printing all this money out of thin air were contained within our borders only we'd be in Zimbabwe shape in months.
     
  18. EZLivin

    EZLivin SW of PDX Well-Known Member

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    The $US is the only capital market on the planet large enough up to harbor all the worldwide liquidity that needs a place to park. As is often said, "It is the worst currency on the planet - except for all the others." Don't expect the $US to topple until another market exists that is functionally able to soak up meaningful amounts of liquidity held by CBs, sovereign funds, pension funds, etc..
     
  19. cookie

    cookie THE SOCIALIST STATE OF KALI - FORNIA Well-Known Member

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    I have to put the blame on the voters.government workers and all in the military for screwing up this county. They are the cause of the debt and waste of valuable resources that have only shown profit to a minority.The fall of the U.S. into a third world country has been in the plans for decades yet even those who think they are enlightened deny the fact.
     
  20. Jammer Six

    Jammer Six North Greenlake, Seattle New Member

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    The part I think is funny is that some of you think you could design a better system.