Death of the Dollar??? Not so fast......

[Neubarth]

I have been telling people this for years. There is no way the Dollar can collapse. If it did, we could undercut any manufactured item in world trade and become fabulously rich selling American product. The world can not have that, so the dollar has to remain high in value.

After all, it is all about international trade, NOT our debt.

 

[Neubarth]

No. The dollar is not doomed.

But the government is sure trying their darndest!

The potential is certainly out there. But it is only potential. An awful lot is telling against it and those factors have been overly discounted.

NONSENSE! Show me all the money that has been printed. What is the value for money in circulation?

 

[jreeves]

ONE of the few calamities that has not befallen the world economy during the past two years is a dollar crash. During the bubble era that preceded it, many (including The Economist) fretted that foreigners, tiring of America’s gaping external deficits, would send the greenback slumping and interest rates soaring. In fact, the opposite occurred. The crisis began within America, and the deeper it became, the more the dollar strengthened as fearful investors sought safety in Treasury bills. Between September 2008 (when Lehman Brothers failed) and March 2009 (when America’s stockmarkets hit bottom), the dollar rose by almost 13% on a trade-weighted basis.

Currencies: The diminishing dollar | The Economist

Central banks have been increasing their holdings of Treasuries, not decreasing them.

And the falling dollar, which hit 14-month lows against a trade-weighted basket of six currencies last week, has done little to deter foreign central banks: Their holdings of Treasurys with the New York Fed have risen to a record $2.124 trillion as of Wednesday.

Treasury Sales Loom, but Demand Is There - WSJ.com

Of course, foreign central banks do not have an infinite demand for Treasuries, but they have not stopped buying our bonds thus far.

And the dollar remains king as the world's black market "reserve" currency.

The U.S. dollar, once universally accepted as the world's strongest currency, has been trounced in recent months by everything from the euro to the Brazilian real to the South Korean won. But in the back-alley markets where business is done in many of the world's developing economies, the dollar still reigns.

In jewelry stores in Vietnam, taxicabs in Venezuela and outdoor markets in Nigeria, black-market money-changers say the dollar is still the currency of choice, even though its value has fallen in some cases. ...

"Typically, dollars are king in the black markets of the world," says Kenneth Rogoff, professor of economics at Harvard University and former chief economist at the International Monetary Fund.

Prof. Rogoff estimates that as much as 75% of U.S. notes in circulation, or more than $600 billion, are held outside the U.S. Most of that is likely in what he calls the underground economy, where transactions are made beyond the oversight of government -- much of which is juiced by the black market.

"This money is not in cash registers, it's not in bank vaults," Prof. Rogoff says. ...

For Venezuelans, where the black market plays a crucial role in the financial system, the dollar has retained its status. Residents seeking protection against inflation or a devaluation of the bolivar turn to currency traders. Large companies that need dollars for operations abroad also visit the unregulated market.

"Having dollars is like a barricade," says Arnaldo Morales, a cabby who moonlights as a currency trader, buying dollars from travelers as they enter the country, then selling them to Venezuelans. ...

In Nigeria, sub-Sahara Africa's second-largest economy, currency traders still deal predominantly in American currency. The black-market traders even have their own trade group, the Association of Bureaux de Change Operators of Nigeria.

"The dollar still has dominance in Nigeria," said Alhaji Farouk Suleman, the president of the group. "The exchange rate might not be good, but you know what you're dealing with and that you can use the dollar anywhere you go. I don't see any real shift towards the pound or euro."

Globally, the Greenback Remains King - WSJ.com

No doubt the dollar still remains the single largest holding of world central banks, but of the new holdings the Euro and yen has overtaken the dollar. China, Japan and et el. are praying that their treasury holdings will gain value, no one wants to sell off at a low point.

 

[Toro]

No doubt the dollar still remains the single largest holding of world central banks, but of the new holdings the Euro and yen has overtaken the dollar. China, Japan and et el. are praying that their treasury holdings will gain value, no one wants to sell off at a low point.

Something like 35%-40% of new additions to reserve accounts this year have been in dollars, compared to the 60%-65% composition of total reserves that the dollar comprises. In 2008, the dollar actually gained a percent of total reserves, according to the IMF. It seems that the dollar will slip a little this year however as central banks buy more of other currencies.

It should be noted, though, that the dollar made up less than 55% of total reserves in the 1970s compared to the ~63% today.

 

[Paulie]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

Eventually we will have to deal with inflation, but it will not happen until we get deflation out of the way.

I think this may be correct, granted I am just an armchair observer. The government has created quite a bit of money, around a trillion, most of it for the banks, who have it parked at the Fed apparently. It hasn't circulated yet, so there is no inflation to speak of. It has spooked foreign central banks though, who are more determined than ever to get away from the dollar.

Government "printing" is only a part of the total money creation process, the other is the banks lending. When they don't lend, money creation stalls. I guess that's why MZM has hit a plateau.

I've been WAITING for you to come back and restore some damn sanity to this forum!

The Fed needs to start removing some of these reserves from the system and raise rates, even if only slightly. Not only to try and defeat the potential of massive price inflation down the road, but to send a message to the world that we do still care about the dollar.

It will hurt the "recovery" we're starting to see, yeah, but in the LONG run it is the best option. And the damage it may do to the recovery will only be temporary. If most of those reserves haven't really hit the street yet, then there's no boom period of which to speak, that we'd be stalling. Only lessening the potential of a new bubble.

The banks are profiting. They've had enough time to play with their reserves (which is where I think most of this stock market increase has come from). Balance sheets are starting to look better, people are deleveraging and saving.

It's time to start raising rates and removing some money from the system.

 

[Paulie]

No. The dollar is not doomed.

But the government is sure trying their darndest!

The potential is certainly out there. But it is only potential. An awful lot is telling against it and those factors have been overly discounted.

NONSENSE! Show me all the money that has been printed. What is the value for money in circulation?

Neubarth, this has been posted multiple times here.

Here's what the Fed has done to the monetary base:

That big spike there at the end is mostly what they've "printed". At the start of the spike, the monetary base was around 800 billion, and at the peak of the spike it appears to be around 1.85 trillion. So you could say they've "printed" maybe 1 trillion, but not all of that is printed money. The monetary base is also demand deposit cash, too. Some of that is money people have parked in savings.

But it's a fair bet to say that given the economic environment, not much has been put into demand deposit savings during this downturn, given the low rate of return. So we'll say for the sake of argument that the Fed has created 1 Trillion dollars.

Most of that still sits in member banks' reserves with the Fed, but I suspect a lot of those banks have been investing that money, and I think that's where a lot of this stock market boom has come from.

Fed created money can only enter the economy and chase goods and services in two ways: Lent out by member banks, or invested by member banks.

I think the asset inflation we've seen has a lot to do with bank reserves being invested.

Notice also, that despite Rabbi saying earlier on, incorrectly I might add, that the Fed has been "eliminating" some of their programs. They have not only NOT eliminated programs, they have been ADDING to them, which is why at the peak of that monetary base chart spike, you see yet another jump up.

Many of those programs expire on 31 December, and some have been extended (Fannie & Freddie MBS purchases) through next March.

 

[jreeves]

No doubt the dollar still remains the single largest holding of world central banks, but of the new holdings the Euro and yen has overtaken the dollar. China, Japan and et el. are praying that their treasury holdings will gain value, no one wants to sell off at a low point.

Something like 35%-40% of new additions to reserve accounts this year have been in dollars, compared to the 60%-65% composition of total reserves that the dollar comprises. In 2008, the dollar actually gained a percent of total reserves, according to the IMF. It seems that the dollar will slip a little this year however as central banks buy more of other currencies.

It should be noted, though, that the dollar made up less than 55% of total reserves in the 1970s compared to the ~63% today.

We should be very worried about the Yen and the Euro replacing the dollar, due if nothing else to the deficits that are lurking in the very near future. Well over a 100 trillion dollars in unfunded liabilities is weighing heavily on the value of the dollar.

 

[Toro]

The yen and the euro will not replace the dollar. Both Japan and Europe have worse structural issues than we do.

It may be that more reserves go into the yen and the euro but neither will replace the dollar.

 

[jreeves]

The yen and the euro will not replace the dollar. Both Japan and Europe have worse structural issues than we do.

It may be that more reserves go into the yen and the euro but neither will replace the dollar.

By replacing I meant, replacing as the chosen reserve currency.

 

[The Rabbi]

The yen and the euro will not replace the dollar. Both Japan and Europe have worse structural issues than we do.

It may be that more reserves go into the yen and the euro but neither will replace the dollar.

By replacing I meant, replacing as the chosen reserve currency.

So did he.
Replacing the dollar would mean lots of dollars that can't be spent anywhere but here. It would mean a massive devaluation of dollar holdings by foreign countries. And they won't do that.

 

[adeel_sami]

I can recall few months back I read a report that showed right before the recovery, US will face worse.
Isn't it what we're facing ?

DOW went back under 10k, home prices and jobless data showing the dark side of the story ..

Hoping the end of crisis soon although the full and fledged recovery is the matter of time ..

 

[jreeves]

The yen and the euro will not replace the dollar. Both Japan and Europe have worse structural issues than we do.

It may be that more reserves go into the yen and the euro but neither will replace the dollar.

By replacing I meant, replacing as the chosen reserve currency.

So did he.
Replacing the dollar would mean lots of dollars that can't be spent anywhere but here. It would mean a massive devaluation of dollar holdings by foreign countries. And they won't do that.

By the way what do you think is going to happen when we have to actually pay for all the promises our government has made, Social Security, Medicare.....massive, massive deficits, which will cause a massive devaluation of the US dollar.

 

[The Rabbi]

By replacing I meant, replacing as the chosen reserve currency.

So did he.
Replacing the dollar would mean lots of dollars that can't be spent anywhere but here. It would mean a massive devaluation of dollar holdings by foreign countries. And they won't do that.

By the way what do you think is going to happen when we have to actually pay for all the promises our government has made, Social Security, Medicare.....massive, massive deficits, which will cause a massive devaluation of the US dollar.

Given that the promises will have to be paid some 10-20 years down the line, I have no idea.

Ideally the GOP will get in touch with its Reaganesque side, cut taxes, cut spending, cut regulation and allow the economy to grow sufficiently to pay for all of that.
Alternatively, the Dums will continue to give out cookies and milk to anyone who asks for them and we will be looking more and more like (formerly) Great Britain.
Too early to tell.

 

[jreeves]

So did he.
Replacing the dollar would mean lots of dollars that can't be spent anywhere but here. It would mean a massive devaluation of dollar holdings by foreign countries. And they won't do that.

By the way what do you think is going to happen when we have to actually pay for all the promises our government has made, Social Security, Medicare.....massive, massive deficits, which will cause a massive devaluation of the US dollar.

Given that the promises will have to be paid some 10-20 years down the line, I have no idea.

Ideally the GOP will get in touch with its Reaganesque side, cut taxes, cut spending, cut regulation and allow the economy to grow sufficiently to pay for all of that.
Alternatively, the Dums will continue to give out cookies and milk to anyone who asks for them and we will be looking more and more like (formerly) Great Britain.
Too early to tell.

To cover all of the unfunded liabilities of SS and Medicare alone taxes would have to be raised by 81% over current levels..or do you think we can cut taxes and get that kind of growth to cover the unfunded liabilities....


We are headed for a train wreck in our lifetime......

Its not like this shit is new though...

[ame]http://www.youtube.com/watch?v=OS2fI2p9iVs&feature=player_embedded[/ame]

 

[The Rabbi]

You are assuming the economy will not grow at all in the next 20 years. If Obama-nomics becomes law then you are probably right. But somehow I doubt it.

 

[jreeves]

You are assuming the economy will not grow at all in the next 20 years. If Obama-nomics becomes law then you are probably right. But somehow I doubt it.

The total worth of the private sector is just over 50 trillion dollars, the total of the unfunded liabilities well over 100 trillion dollars. How fast do you think the economy can grow?

 

[Paulie]

jreeves, nothing matters.

We have a printing press that can pump out any Dollars that other countries refuse to loan us at some point.

We're fine.

And nothing is going to replace the Dollar in reserve currency. Toro's points covered that, and also, the currency that is the reserve currency almost ASSUREDLY has to be backed by a country with military prowess to protect it. Kind of like how we've been using our military lately...but that's a different debate.

In all actuality, at some point, the US is going to collapse Roman Empire style. Maybe not now, or tomorrow, or even 20 years from now. But it's going to happen.

Before that happens though, I'm POSITIVE that there would have to be another country that would be able to replace our position in the world.

As far as that, I only see China when I look at the world map. And they would have to literally invade, conquer, and regime change us.

Otherwise, we're too important to everyone else in the world.

Bottom line though, is that we're 'hussling backwards', as rappers would say, and we've dug a hole we'll literally NEVER be able to get out of. It's just a waiting game at this point.

Try to find the beauty in life and leave it at that.

 

[jreeves]

jreeves, nothing matters.

We have a printing press that can pump out any Dollars that other countries refuse to loan us at some point.

We're fine.

And nothing is going to replace the Dollar in reserve currency. Toro's points covered that, and also, the currency that is the reserve currency almost ASSUREDLY has to be backed by a country with military prowess to protect it. Kind of like how we've been using our military lately...but that's a different debate.

In all actuality, at some point, the US is going to collapse Roman Empire style. Maybe not now, or tomorrow, or even 20 years from now. But it's going to happen.

Before that happens though, I'm POSITIVE that there would have to be another country that would be able to replace our position in the world.

As far as that, I only see China when I look at the world map. And they would have to literally invade, conquer, and regime change us.

Otherwise, we're too important to everyone else in the world.

Bottom line though, is that we're 'hussling backwards', as rappers would say, and we've dug a hole we'll literally NEVER be able to get out of. It's just a waiting game at this point.

Try to find the beauty in life and leave it at that.

Do you really think there is no way out of this? Seriously why doesn't the average American citizen know the dire circumstances involved with all of the US governments unfunded liabilities? This shouldn't be a political issue(even though it is). These unfunded liabilities are something that WILL bring down the US if there is nothing done.

 

[Paulie]

jreeves, nothing matters.

We have a printing press that can pump out any Dollars that other countries refuse to loan us at some point.

We're fine.

And nothing is going to replace the Dollar in reserve currency. Toro's points covered that, and also, the currency that is the reserve currency almost ASSUREDLY has to be backed by a country with military prowess to protect it. Kind of like how we've been using our military lately...but that's a different debate.

In all actuality, at some point, the US is going to collapse Roman Empire style. Maybe not now, or tomorrow, or even 20 years from now. But it's going to happen.

Before that happens though, I'm POSITIVE that there would have to be another country that would be able to replace our position in the world.

As far as that, I only see China when I look at the world map. And they would have to literally invade, conquer, and regime change us.

Otherwise, we're too important to everyone else in the world.

Bottom line though, is that we're 'hussling backwards', as rappers would say, and we've dug a hole we'll literally NEVER be able to get out of. It's just a waiting game at this point.

Try to find the beauty in life and leave it at that.

Do you really think there is no way out of this? Seriously why doesn't the average American citizen know the dire circumstances involved with all of the US governments unfunded liabilities? This shouldn't be a political issue(even though it is). These unfunded liabilities are something that WILL bring down the US if there is nothing done.

The average American citizen knows only what the TV teaches them.

We started really going downhill when every household obtained a TV. We got fat, lazy, complacent, apathetic, you name it.

Besides that, there is the entitlement syndrome thing. Many people feel that it is our duty as citizens through our tax dollars, to take care of others.

It's strange, man. Becuase I'm a fiscal conservative, and I disagree with welfare handouts almost 100%. But there are some things I just don't mind my tax dollars going to. Like food stamps for a single woman with a child, and is going to college, for instance. But there needs to be strict standards that are closely monitored.

SS, Medicare, Medicaid...I don't know. Maybe they made a lot more sense when they were first thought of, but in hindsight, it's hard for me to understand how some people still support them. But most people don't even have the first clue about the fiscal reality of them.

At this point, how do you turn back? Cut off the elderly from care and income? Raise the age of retirement?

I'm still a strong proponent of cutting a lot of money from the military budget. We're killing ourselves spending money overseas fighting cavemen and trying to maintain alliances. It's ridiculous, and the founders are assuredly rolling in their graves over it.

We can cut a lot from the defense budget and it wouldn't have such an immediate negative impact as cutting Medicare or SS, or welfare, etc. would.

You've agreed with me in the past on the defense budget issue, too. I mean, come on man...almost 200 countries...REALLY???

 

[jreeves]

jreeves, nothing matters.

We have a printing press that can pump out any Dollars that other countries refuse to loan us at some point.

We're fine.

And nothing is going to replace the Dollar in reserve currency. Toro's points covered that, and also, the currency that is the reserve currency almost ASSUREDLY has to be backed by a country with military prowess to protect it. Kind of like how we've been using our military lately...but that's a different debate.

In all actuality, at some point, the US is going to collapse Roman Empire style. Maybe not now, or tomorrow, or even 20 years from now. But it's going to happen.

Before that happens though, I'm POSITIVE that there would have to be another country that would be able to replace our position in the world.

As far as that, I only see China when I look at the world map. And they would have to literally invade, conquer, and regime change us.

Otherwise, we're too important to everyone else in the world.

Bottom line though, is that we're 'hussling backwards', as rappers would say, and we've dug a hole we'll literally NEVER be able to get out of. It's just a waiting game at this point.

Try to find the beauty in life and leave it at that.

Do you really think there is no way out of this? Seriously why doesn't the average American citizen know the dire circumstances involved with all of the US governments unfunded liabilities? This shouldn't be a political issue(even though it is). These unfunded liabilities are something that WILL bring down the US if there is nothing done.

The average American citizen knows only what the TV teaches them.

We started really going downhill when every household obtained a TV. We got fat, lazy, complacent, apathetic, you name it.

Besides that, there is the entitlement syndrome thing. Many people feel that it is our duty as citizens through our tax dollars, to take care of others.

It's strange, man. Becuase I'm a fiscal conservative, and I disagree with welfare handouts almost 100%. But there are some things I just don't mind my tax dollars going to. Like food stamps for a single woman with a child, and is going to college, for instance. But there needs to be strict standards that are closely monitored.

SS, Medicare, Medicaid...I don't know. Maybe they made a lot more sense when they were first thought of, but in hindsight, it's hard for me to understand how some people still support them. But most people don't even have the first clue about the fiscal reality of them.

At this point, how do you turn back? Cut off the elderly from care and income? Raise the age of retirement?

I'm still a strong proponent of cutting a lot of money from the military budget. We're killing ourselves spending money overseas fighting cavemen and trying to maintain alliances. It's ridiculous, and the founders are assuredly rolling in their graves over it.

We can cut a lot from the defense budget and it wouldn't have such an immediate negative impact as cutting Medicare or SS, or welfare, etc. would.

You've agreed with me in the past on the defense budget issue, too. I mean, come on man...almost 200 countries...REALLY???

Good post, yes I do agree that military cuts need to take place. For god's sake we have enough nukes to destroy the planet a thousand times, do we really need our military spread out in every nook and cranny in the world? I believe we need to phase out the entitlement programs over short time span and tell people to fend for themselves. Obviously we can't let a 70 year old woman starve to death that's the reason the phase out needs to account for age. I believe welfare in this country needs to lead to a way out of poverty. Whenever a welfare recipient is afforded opportunities that lead them from poverty, they should have to repay at least a portion of what they took from the system.