The Ultimate Destruction of the US Dollar Will Not Happen

[konkon]

I can see Greece leaving the EU and setting-up its own currency in the future. I can also see them spending the loans big time and later saying "thanks, but no thanks". This marriage just didn't work-out for us. We're (Greece) are going back to the drachma and we will dust-off the printing precess and get back to controlling our own money (instead of going to the ECB for huge, unpayable loans). Greece won't change its ways. A restructuring of its debt obligations will make no difference in the long run. They'll just ramp-up the debts later on too.

Imagine Australia, for example, was part of a centralised Asian currency (had no control of the printing presses) and ran into a bit of (debt) trouble and had to go to a centralised Asian agency/bank for loans with (most likely) high interest rates.

Greece with a cheaper drachma will sell more ships, olive oil and have robust tourism.

It's kind of like a race to the bottom with certain currencies these days.

 

[KissMy]

A little bit of history repeating itself to some extent. Many would have ridden-off the US in the 1930s, 1970s but the US came powering ahead eventually.

I think you may be surprised about a crystal ball; just because many in the mainstream world can't see things past their fancy cell-phone apps, doesn't mean there are some that know that a little bit of history does repeat itself, given a set of dynamics. You really think there are those that can't see what a low USD does to the rest of the world (high costs, high currencies etc)? Just because it's not spelled-out in the mainstream media doesn't mean that it doesn't go on or will go on.

The government used the Social Security & Medicare Ponzi Scheme on the huge working Baby Boomer population to shore up it's balance sheet to get the US dollar to power ahead. Now it is time to "Pay the Piper". That working population advantage has gone to China now. We are increasing in dependents & declining in workforce. Slashing entitlements to the bone, cutting military & increasing taxes is the only way to stave off the dollar collapse. The recent commodities correction & dollar rebound is a direct result of Osama Bin Laden's execution & a well timed increase in commodities margin/reserve requirements. The "Terror Premium" came off of Crude Oil & the increased likelihood of lower than expected future military spending by the USG helped bolster the US Dollar.

Bring on a competing reserve currency and it will be played like a fiddle. It will appreciate to the point of killing-off several export markets in Asia, while the west, led by the US and Europe, will be making money off of this trade.

There is more to the USD than just a widely used currency. There is a lot of hidden force behind it. Some will stand to lose a lot if the USD gets crushed. So I'm not betting against it. Don't forget the US has historically low interest rates, and they will go up; meaning potential investments and a flood of other currencies to hit the US markets once again. I can then see opportunists out there getting on this band-wagon.

I do get what's going on, and at the end of the day the US doesn't have to pay these debts and it can just show the proverbial finger to whoever doesn't like this. It has in the past and it will again. I think that there are more at play here than just a simple explanation of what is going on at the simplest level.

Get it?

When has the USA not paid it's debt's even if it had to print money to do so?

 

[konkon]

There are plenty of reports on the net (Youtube documentaries etc) on the 'inevitable' collapse of the USD. There are suggestions that as a result of this collapse commodities like silver and gold etc will go higher in value; protection buying from falling currencies etc. Their arguments seem plausible to some extent, but I think that a lot is overlooked. One being, what stops, for example, margin requirements going higher and higher to buy commodities. You need to pay a 10% premium on silver futures contracts now. What would stop the US from implementing a 50% premium on buying some commodities if the USD was close to a premature collapse; a collapse being helped by synthetic measures and short selling pressures? This is the type of control the US has over world markets and another reason why the USD isn't going anywhere (collapsing) anytime soon.

As strange as these sort of premium measures might seem, it might become an option (among many others we haven't thought of yet) if the US feels it needs to further protect its currency and economy.

And if you think there is very little speculation going on in the commodity markets have a look at the Baltic Exchange Dry Index of commodities being shipped from country to country, below. This a non-speculative index of premiums on actual receipts on cross-county border movement of soft and hard commodities around the world.

May of 2008 saw the hight of actual movements and a drastic drop prior to the GFC. Remember when oil and other commodities were at record highs in 2008? Haven't we recently revisited these highs in the past few months in most commodities? But why isn't this reflected in demand? There has to be an oversupply somewhere (stockpiled perhaps) and a hell of a lot of speculation. The index is at 1467 as of yesterday and its average on the premium paid based on actual receipts back in 2008 and before must have been past the 5000 level; the index went past 10,000 twice back then which would have justified the high energy and commodity prices back then. What justification do we have today? Goldman Sachs recommending we buy commodities again, because it suggests oil will hit $120 again? Didn't Goldman suggest we sell commodities last month? I guess it needs to make more somehow. I wonder how closely Goldman is being looked at these days by regulatory bodies that aren't looking the other way and really do give a stuff about the US economy?



from BALTIC DRY INDEX (BDIY:IND) Index Performance - Bloomberg

And if you think I'm being a little harsh on speculators or extreme speculation, how is the US consumer going to pay for unjustifiably overpriced energy bills etc etc, given the current circumstances, if this sort of thing continues?

 

[ogibillm]

It has already failed. I know how many pesos I can buy for the useless dollar.A hell of a lot less than I could 7 years ago.The dollar is cheap right now.........and I wouldn't touch it with a ten foot shit stick.

just got to point this out - it's a fail for douger

USD to Mexican Peso May 2004 - 1:11.519

todays exchange rate 1:11.669

for those keeping score, that's more pesos per dollar today than 7 years ago.

turns out douger doesn't know shit.

 

[konkon]

It does seem that the US and perhaps other nations are looking at ways to curb enthusiasm in many speculative markets, that are to some extent inversely related to the long term movements of the USD. One way of looking at this is to suggest that curbing speculator enthusiasm might artificially stabilise markets overall. If we look into the future, one possible outcome of this practice would be to control movements (or the lack of those movements) in nearly all markets.

If, for example, the USD is nearing a premature collapse in the distant future, a strategy by those in charge of exchanges (and by those putting pressure from above!) might be to raise margins even further on trading all kinds of markets/platforms, to unprecedented and bizarre levels, so as to preserve the USD. 'Restrictions' like or kind of like this might include restrictions placed on trading other currencies too. Instruments to curb enthusiasm on inversely related products may not be in force today, but may be implemented in the distant future; in other words, we probably haven't even factored in other unique methods of counteracting the mass buying of other products, that are inversely related to the USD.

Artificially propping-up and stabilizing markets is in force today, with for example, the quantitative easing rounds. Who would have thought of this three or so years ago. Imagine what other type of initiatives might be implemented in the next five to ten years.

On a separate note, I feel like we are living in a world where we are becoming more like pot plants than people who are free to swear at others if we feel the need to. Instead of telling us how to live our lives to an optimum degree, how about those in their ivory towers just turn to their window sills and water their pot plants. Hard to justify your job this way I guess. Another way to preoccupy law enforcement agencies and to make them look the other way while corporate fraud, the transfer of wealth form the middle classes, and the issuance of perpetual debt by a largely non patriotic elite occurs.

The masses are not the problem. If those in their ivory towers haven't figured this out yet, then God help us.

 

[konkon]

Capitalism, socialism etc etc (or variations and/or combinations of them) just won't work in the long run if you no longer can pay-down (all) your debt obligations with revenue within a given amount of time, but need to tap into other forms of debt to pay off debt! Layers and layers of debt has become the norm in all types of economic models and systems around the world.

The major banks around the world have made this form of investment acceptable practice, not just for your average investor, but for large corporations and governments. But it's primarily those with lower income, the middle classes and governments that are feeling the heat. Your larger corporations and major banks are repositioning themselves for the next wave of investment opportunities. Are they the masters of my universe? I feel that they think they might be.

 

[konkon]

Here's an interesting question: Does the United States need to pay-off its debts so the USD doesn't collapse? No, at least not in full. Obviously, at this rate, the US debt will continue to rise. Holding large debt has become the norm for individuals, businesses and governments. They're all holding larger debt than in previous decades and if just about everyone is doing it, then it becomes acceptable practice to a large (or to some) extent.

Does the US need to cut military spending? Cutting military spending shouldn't be an option. The US needs to continue to 'control' the seas and geopolitical world to a large extent. It would start to lose its real empire if it gave these up. And it won't. Some county would always (at least, want to) fill the void of world domination (even though some believe all nations should participate in global decision making etc), and I'd rather see the US hold this title. Just look at the alternatives! I could go on and on...; I don't think you can have global cooperation like some socialists believe. You would always have some country that would want to dominate and this would create the same set of problems we have today, if not worse. Better the devil you know in this case.

Other creditor nations to the United States would stand to lose more if the US just shows them the finger. Kind of like Neo living in a world that was controlled by the Matrix, we are living in a world that is controlled by the United States (systems built and controlled by the US that are hidden to most of us), although there is a growing presence of opposition to this control and some of it must be coming from within the United States; the, in my opinion, near collapse of the financial system in 2008 was premeditated to some extent. Another reason why the military and protective services units/agencies (NSA, FBI, CIA, police etc etc etc) should continue to be funded to protect the US from all forms of harm. And this should be separate from congressional oversight, as congress can't follow through with meaningful and worthwhile measures to protect US interests. Factional fighting is out of control and too many special interest groups have too much political influence. Congress just can't be trusted anymore. I'm not blaming individuals, it's just that the system is not functioning like it should given the current crisis. The President and his team cares more about the recovery than congress and is not being criticized here.

Raising taxes in these times is counter-productive to reinvigorate the United States middle class (with too much future debt obligations as things stand). Raising salaries (which would see an increase in tax revenue anyway) would make more sense down the track. The bar has to be raised to keep up with larger debts. This has to be a viable option in due course. A wealthier US citizen (and even illegal alien!) would mean more purchasing power, more money to pay-down debt and more reasons to spur the local and non localised US economy. Sure you would have inflation but it must be the kind of inflation you would want to have, as a byproduct of a strengthening US consumer with (his/her own) money to spend.

The world is seeing a public versus private battle going on. The US, Greece etc is downsizing the public service (or attempting to), selling off state-owned assets and privatising whatever it can. This appears to be preplanned to some extent. By deliberately bankrupting a town, city etc you are going to go after any state-owned asset they have to meet debt obligations.

I don't think the US will reduce its debt over the long run. It will try and reduce the public sector or even privatise it (not its protective services agencies), but this won't even cover any interest repayments. It is possible that a major war will break-out in the future and this will restructure world creditor and debtor markets. I'm sure this occurred during WW1 and WW2. This may be a likely outcome if the US is pressured too much, given the position they're in. Another reason why a secretive presence in the financial markets is paramount. The so-called free markets are not there to destroy countries like the United States and its middle class. The way 'Wall Street' operates, it is a free-for-all. Wall-Streets' own sense of reality is vastly distant to main street's and there shouldn't be such a gap. In a world full of laws that prevents, for example, my neighbour from steeling my lawn mower, why is Wall Street (and co) allowed to manipulate and transfer middle class wealth to a sophisticated elite in and outside of the US? Nothing has really changed and it's a matter of time before another GFC (perhaps worse) occurs.

The US controls markets around the world. Who stands to lose the most if the US decides not to pay its foreign creditors? That would be the creditors themselves and to some extent the US itself; pretty much all countries on earth as a US default could send markets tumbling south, and even surpassing the GFC. Sure all markets are interconnected, but the US would stand to lose less overall.

Trading partnerships are a forced proposition to some extent. Sometimes you've got very little choice but to trade the way the US wants you to. You have to ask yourself why countries just stop using the USD to trade oil. It looks easier than what it actually is. A total break from pertodollars could 'create' a major war. Other nations don't have the control they probably think they do over their own and other markets, anyhow.

Whatever the US stands to lose, other nations stand to lose more. China for the moment would be the only major exception. It will continue to build wealth and a great part of this will continue to come from within its borders. But it will never be in a position to control world markets like the US does. Other nations don't really have a say whether the US controls markets in general. The complex systems the US established and continues to create and dominate (like algorithmic market trading computers) is setting-up the US for the next generation and beyond. The US is also making sure other countries/competitors are peddling backwards, and to a large extent, thank God they are. The systems are in place to make countries like China very wealthy, but insulated from controlling world markets.

The US needs to ensure more counterproductive (to the US) market manipulation doesn't occur. Only true patriots, like in its protective services in general, can adequately form a resistance to this ongoing 'wall-street' hijacking of the US economy and the future of the United States; protective services agencies (the lot, NSA, FBI, CIA etc etc) should protect US citizens, interests etc from these out-of-control traders as much as they should from some lowlife with a bomb. Congress, for example, is not the savior it thinks it is. They are counterproductive to a consistent, worthwhile, followed-through set of plans to see the US collectively reemerge as a dominant world player with a strong middle class.

And if anyone can tell me of a better dominant player to fill the void of the world superpower, I'm all ears....I just can't see it happening. Of course, I have this as a bias so you better try pretty hard.

 

[Jessica Blume]

The dollar has lost over 97% of it's purchasing power. Proof it is collapsing.

 

[editec]

The dollar has lost over 97% of it's purchasing power. Proof it is collapsing.

In what time period are you talking about?

Since 2000? Since 1990? Since 1980? 1970? 1960?

 

[expat_panama]

The dollar has lost over 97% of it's purchasing power. Proof it is collapsing.

In what time period are you talking about?

Since 2000? Since 1990? Since 1980? 1970? 1960?

The dollar is 'collapsing' only in terms of mindless political banter. In terms of actual well, money, our own personal dollars are fiercely guarded as prized treasure and we've no doubt that they'll have the same purchasing power tomorrow as they do today.

 

[editec]

The dollar has lost over 97% of it's purchasing power. Proof it is collapsing.

In what time period are you talking about?

Since 2000? Since 1990? Since 1980? 1970? 1960?

The dollar is 'collapsing' only in terms of mindless political banter. In terms of actual well, money, our own personal dollars are fiercely guarded as prized treasure and we've no doubt that they'll have the same purchasing power tomorrow as they do today.

Collapse is the OPERATIVE WORD, of course.

Hence my asking for clarification by the person who used it.

I'd say that since I was a child, back in the mid 1950s, back when I first started buying things, the dollar has lost about 95% of its purchasing power.

I remember when a loaf of bread could be had for about a dime.

Now that same kind of whitebread loaf is about $2.00.

One cannot base the erosion of purchaing power based on only one item, of course, since different items might become more costly or less costly due to market conditions other than the real value of the dollar..

But generally speaking, I'd say in the last 50 years the dollars purchasing power has dropped about 95%.

Hence my asking what the time frame of reference was.

 

[expat_panama]

...since I was a child, back in the mid 1950s, back when I first started buying things, the dollar has lost about 95% of its purchasing power... ...in the last 50 years the dollars purchasing power has dropped about 95%...

The mid 1950's is 56 years ago, and the best average purchasing power measure we have here says the drop has been 88% That's close to what you said and what it means is on average prices increase 3.7% per year. So from one day to the next a dollar looses three one hundredths of a penny, and only a moron would consider a drop of three one hundredths of a penny a 'collapse'.

 

[konkon]

The $US is reinforced in nearly every asset class, investment model etc around the world. The $US is like oxygen to us. In a hypothetical or future possible world of collapsed markets (for whatever reason), the $US will be the last or one of the last 'men' standing. It won't just disappear like many predict. It (in this world, as it stands) can't 'disappear'. It underlies nearly every other investment model, even indirectly. An analogy would be like saying life on earth would continue after oxygen here 'disappears'! Of course, I don't wish for any of the above to occur. I'm just putting-out analogies and hypotheticals.

So all those packing and preparing for the worst in the USA if there is a so-called hyperinflation situation in the USA, just like I saw on television yesterday, don't bother. It's those outside of the USA that might need to worry; hopefully only might and I hope it doesn't happen.

The $US is defying and will continue to defy supply and demand principles that economists hold so dearly. It's already doing this. The $US is seeing continued support even with all the printing. It's one of the benefits of having the world's reserve currency and you should support every way to continue this into the 22nd century.

The stockpiling of food etc (just in case of the so called hyperinflation of the world's reserve currency) will have an expiry date and you might be throwing away good money. But the $US's expiry date is not on the agenda. Other countries, organizations and agencies might want it to be, but this is where you can help others reinforce the $US continued strength.

Also think of a possible situation where other currencies are no longer as effective to buy goods and services, debts etc etc around the world, and the $US is used even more. This would mean less supply floating out there, higher demand of the $US and the $US to stabilize and strengthen; bringing it in line with supply/demand fundamentals, that we all love! And the $US would continue to be the world's reserve currency.

 

[konkon]

A little more needs to be said about this paragraph:
"The $US is reinforced in nearly every asset class, investment model etc around the world. The $US is like oxygen to us. In a hypothetical or future possible world of collapsed markets (for whatever reason), the $US will be the last or one of the last 'men' standing. It won't just disappear like many predict. It (in this world, as it stands) can't 'disappear'. It underlies nearly every other investment model, even indirectly. An analogy would be like saying life on earth would continue after oxygen here 'disappears'!" from my previous post ...

It should read "life on earth would not continue after oxygen disappears". The analogy "life on earth would continue after oxygen disappears" is in the context of someone believing that the $US is not really needed as a reserve currency. Not my view though.

You need to keep this in the context of certain fundamental dynamics, as they stand. I know that theoretically, even toilet paper from some country might be used as a form of reserve currency. A country other than the US might, one day into the very distant future, have a reserve currency, and I'm sure there are plenty looking at this option. My point was to raise the fact that other currencies, asset classes, economies etc that are so interconnected, even at a delicate level, are so interdependent in the $US survival that this is one key reason why the $US isn't going away any time soon.

Now the analogy given 'life on earth would not continue after oxygen here 'disappears'!' might seem false, but what I was alluding to was you would have a really unstable world economy if the $US collapsed, even if you substitute the $US with alternative currencies. In fact, I think you would most probably have chaos and mayhem and countries, organizations, companies, people(!) etc etc trying desperately to reposition themselves. Wars etc would probably break-out. It's possible that major ones even would break-out. Company balance sheets and P&Ls would be falsely re-marked, and this would add to the carnage. It would be a completely chaotic, confusing, dangerous time.

Depending from which perspective you view the analogy from, it's meant to reinforce the view that in the real economic world, as it stands and has stood for so long (with the $US being the reserve currency) a destruction of the $US cannot have any smooth transition at all! It would make mankind reevaluate all that he/she owns, mostly to the downside. How would you realistically mark valuations if such valuations crashed and then were thrown into the unstable, confusing and problematic world that would evolve? Certainly not with toilet paper or another would-be world reserve currency.

Having said all of this, the $US cannot be easily replaced as the world's reserve currency.

 

[konkon]

I'm not happy with this passage of mine. Clarification needed: "If China keeps buying US treasuries/dollars then the US dollar will drag the (pegged) yuan down. But this is a problem when China's +10% growth means the yuan should be going the other way - up! And at around 5% per year, at least."

What I wanted to say here is that China is going to have a stronger yuan down the track, even by default if Vickers is right (and even if his theory doesn't eventuate), and this is not something China would want. A stronger yuan is on the cards in the long term, in many macro possible case scenarios.

There might be another passage like this one that I needed to clarify in one of my threads. This clarification should suffice.

China would want to devalue its currency tho in the distant future, but kind of like Japan (and for some different reasons), it may not be able to.

 

[konkon]

Some more clarification from my quotes needed.

"That might depend on whether the Fed in the US stops the quantitative easing. If it does, then the US dollar might drop even further." .. if it does continue it ..

Meant to say if the fed continues QEs the usd will continue to fall.

"The Fed may just slow the process down." No with QEs, the fed is helping devalue the usd.

 

[Staidhup]

When the dollar is no longer the preferred reserve trading currency, the yuan is backed by gold, replaces the dollar as the preferred reserve trading currency, the dollar will collapse. When 85% or better of publicly traded stocks trade in unison, all up, all down, then you have a market not driven by individual company performance but herd and confidence mentality. When markets respond as they continue to do so it further indicates weakness, furthermore, that one set of bad numbers or unsettling sovereign debt news will send the market in a tailspin. China is the largest accumulator of gold in the world, currently holding and attempting to liquidate unprecedented amount of US debt securities without taking a beating should tell you something about the precarious financial position the dollar, market, and world economy is in. At present we are China's largest trading partner and as the developing world matures will reduce our importance. At present our only chance is to put our financial house in order or suffer the consequences. In short the dollar is a bubble currency supported by simple trust and there is no one currency set to take it down, not yet.

 

[Widdekind]

When the dollar is no longer the preferred reserve trading currency, the yuan is backed by gold, replaces the dollar as the preferred reserve trading currency, the dollar will collapse.

because creditors, currently holding vast Reserves of USD, will "dump" the Money, increasing the "active & circulating" Money Supply, and so sparking inflation (MV = PQ, ++M => ++P) ?

When 85% or better of publicly traded stocks trade in unison, all up, all down, then you have a market not driven by individual company performance but herd and confidence mentality.

large institutional "super-investors", e.g. Hedge Funds, moving their large amounts of Money "all at once", could account, for your perceptions, of "herd-ism" ?

At present we are China's largest trading partner and as the developing world matures will reduce our importance.

developing markets, for Chinese products, e.g. "Asian tigers", would reduce any "trade leverage" the US currently wields ?

 

[konkon]

Those SDRs are interesting, and if it's the sort of thing the IMF might be behind, then even more of a reason to keep the IMF at bay! I'm not surprised the US decided not to fund the IMF this time round.

I wouldn't be surprised if many are watching what the IMF does and if it tries to sway from its mandates to ie. 'help' poorer nations. If the IMF tries to push for an alternative reserve 'currency' (I don't think it can for many reasons) or tries to push for another alternative currency, then this will trigger (maybe already has) alarm bells in the US. The IMF is no match for the US, anyway. Having said this, the possible implementation in the future of SDR bonds to refinance, pay down derivative loans etc, might be!

On a different issue, gold can be an alternative 'currency' play to the $US but it's no match.

The following comes from the article, and it's a potential concern, if true (and this is largely reported in the media):

22 Red Flags That Indicate Serious Doom Is Coming… - YOLO (you only live once)

"The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is." from the article

How does something like this happen and is it true? I keep hearing about these derivative exposures but it still doesn't make sense as to how high this number can be. Are they based on contractual arrangements that will one day need to be met with part payments of real money, as that sort of capital doesn't exist.

If this is true, then is this why I keep reading about possible future non USA backed (but backed by some organization that's in the press a fair bit!) SDRs needed maybe to honor contractual derivative agreements?

If this happens, and hopefully the derivative stories are just that, then does this mean an attempt at an alternative reserve currency?

A possible attempt at best I think.

If, and this is a big 'if', these dots can be connected like this, then this should, I'd say, concern those in the USA that want to see the USD as the reserve currency. The USA doesn't have enough $US to commit to these programs (if you can call them this!) for logistical and restrictive reasons. If it was to commit in part with $US, it would most likely devalue the USD very quickly (which no one wants!).

The call for maybe (you know which organization's) SDRs to soak up the refinancing, debts, part payments etc, by implementing possible future SDR bonds or really synthetic fiat paper (!), would potentially be a paradigm shift in world markets.

Maybe and just maybe the USA should look at creating synthetic contractual bonds of their own (even putting forward the blueprints in secret) just in case it heads down this path and the stories I keep reading about and listening to on ie finance programs, become a little more real than I would personally hope for.

One could always put a 'sold' sign on the moon and Mars and use this as collateral!

 

[ThinkCritically]

The dollar is still king for one reason....Incumbency. China will continue to position itself away from the dollar. The PRC would probably like to leave the dollar today but it can't do so quickly because a major sell off would destroy the value of its remaining dollar holdings. In the long run though China keeps diversifying away from the dollar.