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radarman wrote:

http://curiouscapitalist.blogs.time.com/2009/10/06/what-if-oil-werent-priced-in-dollars/

Such a change wouldn't be unmitigated bad news for Americans. As I've written before, having the dollar as the world's currency has been a mixed blessing. The dollar's global role inflates its value, for example, which makes imports cheaper for consumers here but also makes U.S products less competitive globally. Dollar supremacy also allows the U.S. government (and until recently the private sector) to get away with wildly unbalanced budgets without paying an immediate penalty in higher interest rates, which can be nice for a while but tends to end in trouble. The global capital-flow imbalances that many economists now say were at the root of the financial crisis are in significant part a product of the dollar's outsized role.

All of this means that it may well be in the long-run best interest of the U.S. to push for an orderly transition away from the current dollar-based global monetary system and toward one built around currency baskets, the International Monetary Fund's special drawing rights, the bancor, gold or whatever other measure of value we can all agree on. In other words, it's not the worst news in the world that the Persian Gulf countries are talking about moving away from the dollar. Even if they say they aren't.

This was what I was trying to get at in the last topic - the transition isn't the problem. The orderliness of the transition is the problem.

In that case, it might actually be better if everyone was talking in terms of firm time tables - and were serious about keeping them.

"Everyone" has to include Washington.

As long as Uncle Sam isn't even recognizing the situation, talk of cooperation and an orderly transition are pretty meaningless.

Pariah wrote:

I see a lot of upside to the dollar declining in value and damn few downsides.

Then look harder.

Remember that post about hotel workers training their replacements and then being laid off?

Hotels are closing all over California. All over the country. They can't afford to stay open because people can't afford to travel. Declining dollar has a lot of readily evident downsides.

I understand the way the dems are spending and printing that it is going to decline, so now is the time to try and sell it as being a good thing, but it's not a good thing.

How could it possibly be a good thing for your bank account to have considerably smaller buying power tomorrow than it has today?

And it's not the declining dollar that makes U.S. citizens stay at home. It's worries over your job, or losing your job that keeps you at home. The dollar has declined before and didn't affect domestic vacationing.

A declining dollar should only increase hotel business. This is because a). it's cheaper for international travelers to visit the US and b). it's more expensive for US citizens to travel internationally, so they travel domestically.

The cost of services, such as staying in a hotel, will be unaffected. The cost of goods, such as buying electronics, will likely go up, since most of our merchandise is now imported from other countries.

resedit wrote:

I understand the way the dems are spending and printing that it is going to decline, so now is the time to try and sell it as being a good thing, but it's not a good thing.

You're still going after the inflation bit ?  Have you been looking at the numbers in the six months since you stated the current actions in the economy would cause inflation and possibly hyperinflation ?

Also, the Federal Reserve is independent, and Bernanke was placed in his role by a Republican President.

JakeTheTall wrote:

Also, the Federal Reserve is independent, and Bernanke was placed in his role by a Republican President.

Unlike most here, I'm not single party partisan.
I give a rats ass who appointed who, that doesn't make me agree with them or the way things are going as a result of their apartment.

ShnickyShnack wrote:

Pariah wrote:

resedit wrote:

Then look harder.

Remember that post about hotel workers training their replacements and then being laid off?

Hotels are closing all over California. All over the country. They can't afford to stay open because people can't afford to travel. Declining dollar has a lot of readily evident downsides.

I understand the way the dems are spending and printing that it is going to decline, so now is the time to try and sell it as being a good thing, but it's not a good thing.

How could it possibly be a good thing for your bank account to have considerably smaller buying power tomorrow than it has today?

Um, having a lower dollar makes the USA a more affordable destination, makes our goods more competitive on the world market, makes paying down the debt easier.
The dollar loosing value would hurt our debt holders much more than us.

Hurting America's creditors isn't wise, considering how dependent on borrowing Uncle Sam has become. Screw your creditors and they stop lending. Or if they do, they'll expect much higher interest to counter the risk.

There's also the borrowing needed by industry just to operate day-to-day, and as costs of borrowing skyrocket, their ability to borrow drops -- and that also means it's harder to invest in upgraded equipment, training and so on to stay ahead of the competition. Although I'm also left wondering, "what goods are we talking about? American industry is a shadow of its former self."

In other words if you screw your creditors you screw yourself.

It's educational to look at what happened to Britain in the 70s when the Pound collapsed.

It initiated a vicious cycle ... drops in currency meant borrowing became much harder, which meant that everyone, from government to business, had to make drastic cuts, which hit the economy hard, which hurt the pound more, which forced more cuts.

If the present trend continues, the rightie-tighties will get their wish of drastically reduced government spending. Unfortunately, pull that much money out of the economy and the results are certain to be a nightmare.

Our creditors are the ones doing this. Sure, the ultimate blame falls on us, but their own actions are, in the short term, going to damage their holdings. It's the price they will pay to get free of the dollar dominance. If they get wiped out, well - that was the risk they took.

ShnickyShnack wrote:

radarman wrote:

ShnickyShnack wrote:

Hurting America's creditors isn't wise, considering how dependent on borrowing Uncle Sam has become. Screw your creditors and they stop lending. Or if they do, they'll expect much higher interest to counter the risk.

There's also the borrowing needed by industry just to operate day-to-day, and as costs of borrowing skyrocket, their ability to borrow drops -- and that also means it's harder to invest in upgraded equipment, training and so on to stay ahead of the competition. Although I'm also left wondering, "what goods are we talking about? American industry is a shadow of its former self."

In other words if you screw your creditors you screw yourself.

It's educational to look at what happened to Britain in the 70s when the Pound collapsed.

It initiated a vicious cycle ... drops in currency meant borrowing became much harder, which meant that everyone, from government to business, had to make drastic cuts, which hit the economy hard, which hurt the pound more, which forced more cuts.

If the present trend continues, the rightie-tighties will get their wish of drastically reduced government spending. Unfortunately, pull that much money out of the economy and the results are certain to be a nightmare.

Our creditors are the ones doing this. Sure, the ultimate blame falls on us, but their own actions are, in the short term, going to damage their holdings. It's the price they will pay to get free of the dollar dominance. If they get wiped out, well - that was the risk they took.

Amazingly, you're still not getting it.

They're certain to get wiped out of they maintain Washington's head-in-the-sand attitude. Given a choice they'd  rather not change anything. Why would they? No one stands to gain. Certainly not China, which has immense amounts of US dollar reserves.

The dollar is declining and will continue to decline. No one is doing a damn thing about it. The transition is happening no matter what.

It baffles me that you continue to see this as some kind of war, with the dollar's value some kind of prize.

It may not be a classic war, and the high value of the dollar is certainly no perfect prize, but the future of the US economy rests in the balance. Depending on how things proceed, we could see a gradual decline as a world empire, or a sharp decline into a third world nation - complete with riots and looting. The "prize" is the continued stability of the US economy, and as a practical consequence, of the nation.

True, as a nation, we are going to have rethink what the "American Lifestyle" is, but to sit by and idly watch foreign nations taking actions that will harm our economy and our interests is absurd. It is contingent upon the US government, and military, to make sure that whatever shifts occur, they occur in such a way as to insure the stability of our nation. If that requires dropping bombs, so be it - though I would hope it never comes to that.

That is one of the fundamental functions of any government.

ShnickyShnack wrote:

radarman wrote:

ShnickyShnack wrote:

Amazingly, you're still not getting it.

They're certain to get wiped out of they maintain Washington's head-in-the-sand attitude. Given a choice they'd  rather not change anything. Why would they? No one stands to gain. Certainly not China, which has immense amounts of US dollar reserves.

The dollar is declining and will continue to decline. No one is doing a damn thing about it. The transition is happening no matter what.

It baffles me that you continue to see this as some kind of war, with the dollar's value some kind of prize.

It may not be a classic war, and the high value of the dollar is certainly no perfect prize, but the future of the US economy rests in the balance. Depending on how things proceed, we could see a gradual decline as a world empire, or a sharp decline into a third world nation - complete with riots and looting. The "prize" is the continued stability of the US economy, and as a practical consequence, of the nation.

True, as a nation, we are going to have rethink what the "American Lifestyle" is, but to sit by and idly watch foreign nations taking actions that will harm our economy and our interests is absurd. It is contingent upon the US government, and military, to make sure that whatever shifts occur, they occur in such a way as to insure the stability of our nation. If that requires dropping bombs, so be it - though I would hope it never comes to that.

That is one of the fundamental functions of any government.

Let me ask you this: if you have a beautiful car and, over the years, stop looking after it, so that eventually it becomes a beat-up piece of smurf, doesn't the value of that car decline? And would you blame your neighbors for thinking it wasn't worth much? Why would you think they were trying to smurf you?

If you fix it up, repaint it, rebuild the engine and get it running great, its value will increase. The neighbours will stop worrying about it crashing into their living rooms.

In other words the responsibility is yours to fix it, and no one else's. In fact I'll bet other countries would be willing to pitch in and help, if they were presented with a good plan for turning things around. But like I keep saying, no one in Washington gives a smurf.

You don't get it. I agree with you that the US needs to get its economic house in order. Hell, I've been arguing that for years now. The problem is other nations taking unilateral, and potentially damaging, actions.

The equivalent to your car analogy would be if your neighbors got together and had your car hauled to the dump without your permission.

ShnickyShnack wrote:

radarman wrote:

ShnickyShnack wrote:

Let me ask you this: if you have a beautiful car and, over the years, stop looking after it, so that eventually it becomes a beat-up piece of smurf, doesn't the value of that car decline? And would you blame your neighbors for thinking it wasn't worth much? Why would you think they were trying to smurf you?

If you fix it up, repaint it, rebuild the engine and get it running great, its value will increase. The neighbours will stop worrying about it crashing into their living rooms.

In other words the responsibility is yours to fix it, and no one else's. In fact I'll bet other countries would be willing to pitch in and help, if they were presented with a good plan for turning things around. But like I keep saying, no one in Washington gives a smurf.

You don't get it. I agree with you that the US needs to get its economic house in order. Hell, I've been arguing that for years now. The problem is other nations taking unilateral, and potentially damaging, actions.

The equivalent to your car analogy would be if your neighbors got together and had your car hauled to the dump without your permission.

That's not what's happening, though. If the US gets its house in order and the dollar recovers, then great, all these plans can and will be tossed away -- but the fix-up will have to happen soon.

And personally I don't think the situation can be fixed. If the federal (and state) government(s) were to stop borrowing, and indeed start posting healthy surpluses, the effect on the economy could likely be disastrous, because it could only come as a result of massive spending cuts (and tax hikes).

These countries are not causing the trouble; they're just trying to deal with it. And frankly the fact that so few people in the States are even talking about this shows how wise those countries are being.

Let me ask you this: if you were running China, and looking at the present situation of the greenback, what would you do differently?

I would be on the red phone to the Oval Office explaining how my country won't be buying any more US treasury bonds until they got their stuff together. THAT would get their attention.

ShnickyShnack wrote:

radarman wrote:

ShnickyShnack wrote:

That's not what's happening, though. If the US gets its house in order and the dollar recovers, then great, all these plans can and will be tossed away -- but the fix-up will have to happen soon.

And personally I don't think the situation can be fixed. If the federal (and state) government(s) were to stop borrowing, and indeed start posting healthy surpluses, the effect on the economy could likely be disastrous, because it could only come as a result of massive spending cuts (and tax hikes).

These countries are not causing the trouble; they're just trying to deal with it. And frankly the fact that so few people in the States are even talking about this shows how wise those countries are being.

Let me ask you this: if you were running China, and looking at the present situation of the greenback, what would you do differently?

I would be on the red phone to the Oval Office explaining how my country won't be buying any more US treasury bonds until they got their stuff together. THAT would get their attention.

They've already done that.

Not as directly as you suggested -- that would be a hostile, aggressive act -- but many, many warnings have been issued. They've fallen on deaf ears.

Even this recent move to replace the dollar has been talked about and talked about, at length, for a couple of years no. The result: nada.

Really, I find the idea of "not buying bonds" to be far less aggressive than talking oil producing nations into switching from the dollar to other currencies. It's not like there is a law that requires China to keep buying these bonds. Also, it's not like the whole world gets to listen in to these conversations. If done at a high enough level, and kept appropriately classified, it would get attention without risking too much upset.

Now, selling off a bunch of bonds all of a sudden, on the other hand, would be a hostile, aggressive act.

ShnickyShnack wrote:

radarman wrote:

ShnickyShnack wrote:

They've already done that.

Not as directly as you suggested -- that would be a hostile, aggressive act -- but many, many warnings have been issued. They've fallen on deaf ears.

Even this recent move to replace the dollar has been talked about and talked about, at length, for a couple of years no. The result: nada.

Really, I find the idea of "not buying bonds" to be far less aggressive than talking oil producing nations into switching from the dollar to other currencies. It's not like there is a law that requires China to keep buying these bonds. Also, it's not like the whole world gets to listen in to these conversations. If done at a high enough level, and kept appropriately classified, it would get attention without risking too much upset.

Now, selling off a bunch of bonds all of a sudden, on the other hand, would be a hostile, aggressive act.

That would smurf the sellers even more than the US. And who in the world would buy them?

The Fed has had a hell of a time selling America debt in the past year. Which incidentally should also have been a clear sign that faith in US debt is in serious decline.

It was, to those paying attention.