U.S. dollar's reserve status not eroding

[M.Dancer]

Carl Weinberg, the chief economist at High Frequency Economics, a research shop that focuses on the Group of Seven countries, China and Australia, kicked off his first research note of 2011 by suggesting a candidate for most hyped story of 2010: the notion that central banks are diversifying their reserves away from the U.S. dollar.

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/us-dollars-reserve-status-not-eroding/article1856011/

The demise of the greenback is also one of the most boring topics on this board.

[bush_cheney2004]

...The demise of the greenback is also one of the most boring topics on this board.

Agreed..all those disenchanted with their US dollars....please send them to me!

[jbg]

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/us-dollars-reserve-status-not-eroding/article1856011/

The demise of the greenback is also one of the most boring topics on this board.

The province of tinfoil hats.

[maple_leafs182]

The demise of the greenback is also one of the most boring topics on this board.

When it does collapse, it will have a greater impact on the world then 9/11.

The province of tinfoil hats.

It has nothing to do with a conspiracy, when a government continuously resorts to printing money in order to prop up a failed economic system, the currency is bound to collapse.

I don't think you guys see or understand the enormity of the problem that lays ahead of us.

[Michael Hardner]

It has nothing to do with a conspiracy, when a government continuously resorts to printing money in order to prop up a failed economic system, the currency is bound to collapse.

From what I've read, we're still far from the levels of borrowing that FDR engaged in during the 1930s, and the US is more of a dominant economic force than it was then, as far as I can see.

[M.Dancer]

More bad news for some....

The US economy is strengthening and that pushes the Loon upwards...

The Canadian dollar is doing better because a good U.S. number should be good for Canada, said John Curran, senior vice-president CanadianForex.

If you get a good number out of the U.S., it's going to basically flow into Canada at some point.

http://www.theglobeandmail.com/report-on-business/economy/strong-us-data-push-loonie-higher/article1858175/

Edited January 5, 2011 by M.Dancer

[maple_leafs182]

From what I've read, we're still far from the levels of borrowing that FDR engaged in during the 1930s, and the US is more of a dominant economic force than it was then, as far as I can see.

The US had a economy that was based more on production back then as appose to now where it is based on consumption.

You can only borrow money as long as people are willing to borrow you money. The bull market for US government bonds is ending, this is why the Fed announced QE2 a couple months ago, not enough people are buying bonds.

[Michael Hardner]

The US had a economy that was based more on production back then as appose to now where it is based on consumption.

We were discussing borrowing, now you have changed it.

If you want to talk about the nature of the economy, look at all the western economies together. How is farming doing since the 1920s ? How many iPods were sold during the great depression ?

You can only borrow money as long as people are willing to borrow you money. The bull market for US government bonds is ending, this is why the Fed announced QE2 a couple months ago, not enough people are buying bonds.

My understanding is that this is just another way to keep interest rates low.

[dre]

From what I've read, we're still far from the levels of borrowing that FDR engaged in during the 1930s, and the US is more of a dominant economic force than it was then, as far as I can see.

Thats only if you look at debt as a percentage of GDP. Thats highly misleading because the government cant just take as much from that pool as it wants. It only has the federal budget to work with. Marginal tax rates back then were up around 75% compared to 35% now. The government had more ability to raise money for debt maintenance, and they generally understood the correlation between taxation and debt maintenance which miraculously has been completely lost today.

In my opinion what you are seeing now is a lot different. We have 30 years of exploding defecits, yet they keep lowering taxes over and over again. The behavior seems almost intentionally reckless and shows no signs of changing.

Debt as a percentage of GDP doesnt mean jack shit if there isnt a market for your bonds, and the only reason theres a market now is because pacific rim and oil exporting nations have an interest in propping up the US because the see it as "too big to fail". The world is bailing out America for the exact same reason America bailed out big investment banks, general motors etc.

http://www.colorado.edu/AmStudies/lewis/ecology/natdebt.gif

You gotta wonder how long that trend can continue.

This can continue to go on for the forseeable future, but the real risk comes with the fast emergence of other consumer markets. Once the percentage of total consumption that US and other western consumers account for drops below a certain point there will be no reason for the rest of the world to keep bailing us out and propping us up.

[Michael Hardner]

Thats only if you look at debt as a percentage of GDP. Thats highly misleading because the government cant just take as much from that pool as it wants. It only has the federal budget to work with. Marginal tax rates back then were up around 75% compared to 35% now. The government had more ability to raise money for debt maintenance, and they generally understood the correlation between taxation and debt maintenance which miraculously has been completely lost today.

In my opinion what you are seeing now is a lot different. We have 30 years of exploding defecits, yet they keep lowering taxes over and over again. The behavior seems almost intentionally reckless and shows no signs of changing.

Debt as a percentage of GDP doesnt mean jack shit if there isnt a market for your bonds, and the only reason theres a market now is because pacific rim and oil exporting nations have an interest in propping up the US because the see it as "too big to fail". The world is bailing out America for the exact same reason America bailed out big investment banks, general motors etc.

http://www.colorado.edu/AmStudies/lewis/ecology/natdebt.gif

You gotta wonder how long that trend can continue.

This can continue to go on for the forseeable future, but the real risk comes with the fast emergence of other consumer markets. Once the percentage of total consumption that US and other western consumers account for drops below a certain point there will be no reason for the rest of the world to keep bailing us out and propping us up.

The % of GDP, though, is important to know how big the deficit is. A lot of this speculation sounds like silly doom and gloom to me. The US is the world's biggest economy, never mind this 'too big to fail' stuff. They are the richest nation on earth.

[dre]

The % of GDP, though, is important to know how big the deficit is. A lot of this speculation sounds like silly doom and gloom to me. The US is the world's biggest economy, never mind this 'too big to fail' stuff. They are the richest nation on earth.

The % of GDP, though, is important to know how big the deficit is.

No, GDP is irrelevant for the reasons I explained. Debt maintenance has to come from the federal budget. So if you want to get an idea of the size of the debt in terms of the borrowers ability to finance it or ever pay it back youre comparing the wrong numbers. Especially with the current political environment where low taxes have almost become a religion.

And a bailout is exact what youre seeing, and it that bailout handed been happening for the last thirty years it would already take 1000 us dollars to buy a cheese burger.

At some point though the game will be up, its just a matter of when.

And Im not preaching doom and gloom... I think were probably a decade or two away from this coming to head, and even once the entity known as the "US Government" has to declare bankrupty again like they did in 1972, it still wont mean the end of America or Americans. Life will go on...

Im not sure youre quite grasping the gravity of the situation though. Even in the 90's during a time of record prosperity and huge growth Americans could not fund their own government. Lets say for the sake of argument that the US started running billion dollar surpluses (which is unthinkable). They would need to run those surpluses for 14 thousand consecutive years to pay back what they have borrowed.

The rest of the world isnt going to fund the US government forever. The only reason theyre doing it now is because they rely so heavily on the US consumer market that they have no choice but to bail out the US or scuttle their own export market and economic growth. But as other markets emerge export nations will diversify and youll reach a tipping point where the house of cards comes down rather quickly.

You could prove this with a small experiment. Increase your spending so that your annual liabilities are 20% larger than your income. Run your finances like that for a few years and see how it goes. JBQ claims to be a bankruptcy attorney so he might come in handy after the experience is over.

Edited January 5, 2011 by dre

[ZenOps]

The electronic and paper US dollar is eroding faster than Canadian coins.

2011 will mark the introduction of Steel Toonies and Loonies, which means a Toonie will contain about 0.58 cents worth of metal value. A 1996 pure copper penny contains 2.3 cents worth of metal value.

What is worth more, when you are stranded in a third world country and need to pay for a meal? 4 Toonies or one penny.

The US reserve status is not eroding in many parts of the world... Because the vast majority of the world never pinned their currency to the US dollar in the first place (Most notably China)

http://en.wikipedia.org/wiki/File:DOLLAR_AND_EURO_IN_THE_WORLD.svg

Canada does not even technically pin against the US dollar. Our currency is officially tied to the Pound under British Commonwealth (which right now, is arguably worse than being pinned to the US)

I'm still not looking forward to King Charles III being on all of the currency though.

[M.Dancer]

Canada does not even technically pin against the US dollar. Our currency is officially tied to the Pound under British Commonwealth (which right now, is arguably worse than being pinned to the US)

[Bonam]

Lets say for the sake of argument that the US started running billion dollar surpluses (which is unthinkable). They would need to run those surpluses for 14 thousand consecutive years to pay back what they have borrowed.

Kind of a meaningless example. Why pick the number of 1 billion? The surplus could be 2 billion and then it'd take 7000 years, or the number could be 2 trillion and then it'd be just 7 years. Of course at a rate of 1 billion / year paying off the US deficit would take forever, since 1 billion is almost negligible pocket change on the scale of the US economy. Even in Canada's budget, 1 billion either way (deficit or surplus) would be called a "balanced budget", because that 1 billion difference is so tiny.

Anyway, the problem is in a sense self-correcting. If the US dollar really does start to fall in value at a rapid rate, then imports to the US would quickly become much more expensive for Americans to buy. Suddenly, manufacturers would have a greater advantage producing things in the US to sell them to Americans, rather than producing them elsewhere. That would boost American domestic manufacturing/production and exports as well, which would raise back the value of the dollar. There are plenty of corporations and entrepreneurs in the US that would see to that.

[maple_leafs182]

If the dollar loses value that means the cost of living goes up. All the people who have their savings in dollars will see their wealth disappear which is probably 90% of Americans(I made that figure up). If the dollar continuously loses value then buying American Government Bonds becomes less attractive to both foreign and domestic investors. If people stop buying American bonds which I believe is happening right now then the American Government would either have to resort to printing money in order to finance their spending obligations, severely raise taxes, cut spending or declare bankruptcy.

America won't raise taxes, they just extended the Bush tax cuts. They won't cut spending, or at least they haven't and things like health care is driving up their costs even more. It does not seem like they have any intentions of declaring bankruptcy, all that leaves is printing money which they are doing(QE2).

This is big, pay very close attention to this.

The US congress will soon be voting on whether or not they will raise the debt ceiling, if they do, then the Government will be able to continue these huge deficits, if not then the economy will face a lot of problems in the near future.

Edited January 6, 2011 by maple_leafs182

[dre]

Kind of a meaningless example. Why pick the number of 1 billion? The surplus could be 2 billion and then it'd take 7000 years, or the number could be 2 trillion and then it'd be just 7 years. Of course at a rate of 1 billion / year paying off the US deficit would take forever, since 1 billion is almost negligible pocket change on the scale of the US economy. Even in Canada's budget, 1 billion either way (deficit or surplus) would be called a "balanced budget", because that 1 billion difference is so tiny.

Anyway, the problem is in a sense self-correcting. If the US dollar really does start to fall in value at a rapid rate, then imports to the US would quickly become much more expensive for Americans to buy. Suddenly, manufacturers would have a greater advantage producing things in the US to sell them to Americans, rather than producing them elsewhere. That would boost American domestic manufacturing/production and exports as well, which would raise back the value of the dollar. There are plenty of corporations and entrepreneurs in the US that would see to that.

Its true a correction will happen but you paint way too pretty a picture. Its true that a low dollar will encourage domestic production, but the problem is domestic producers are also dependant on imports.

I think the plan though is to just let the dollar bottom out. I mean... the people that charted this course (Nixon, Reagan, etc) were not stupid. Its not like its an accident that the rest of the world ended up funding the US government. Nixon decoupled the dollar from Gold, then Reagan started the massive defecit spending spree you see happening today. Im assuming there must be a plan, and it would seem to me that the plan is extract as much wealth from the rest of the world as possible, and deflate the currency so you never have to pay any of it back. At this point its highly unlikely that anyone is going to change course... politicians are addicted to spending magic money, and continuing the lowtax religion.

Once the US dollar hits zero value, the US will be out of debt completely, and the system will be essentially rebooted. The US is the only country in the world that can play this card, and Im pretty sure thats what will happen eventually.

[GostHacked]

The % of GDP, though, is important to know how big the deficit is. A lot of this speculation sounds like silly doom and gloom to me. The US is the world's biggest economy, never mind this 'too big to fail' stuff. They are the richest nation on earth.

I think the 'rich' is a facade. China owns a good portion of the US debt. You can't print money without someone 'buying' into it as shares in the country. China is the world's next superpower, that's been evident for some time.

The world's richest country also has the world's largest debt. The US National debt is clocking in around 13 trillion.

http://abcnews.go.com/Business/Politics/national-debt-soars-past-13-trillion/story?id=10748382

[Michael Hardner]

I think the 'rich' is a facade. China owns a good portion of the US debt. You can't print money without someone 'buying' into it as shares in the country. China is the world's next superpower, that's been evident for some time.

The world's richest country also has the world's largest debt. The US National debt is clocking in around 13 trillion.

http://abcnews.go.com/Business/Politics/national-debt-soars-past-13-trillion/story?id=10748382

Doomsday scenarios ... how much US debt do Americans own too ?

Edited January 6, 2011 by Michael Hardner

[Guest American Woman]

I think the 'rich' is a facade. China owns a good portion of the US debt. You can't print money without someone 'buying' into it as shares in the country. China is the world's next superpower, that's been evident for some time.

Ironic, then, how my friend from China just informed me of his desire to move to North America. He says all the talk about China's growth is half true, half misrepresentation.

The world's richest country also has the world's largest debt. The US National debt is clocking in around 13 trillion.

The richer one is, the higher the debt one can afford. It's why people with more money generally have higher mortgages than people with less money.

[dre]

Doomsday scenarios ... how much US debt do Americans own too ?

What does that even mean Mike? "Doomsday Scerarios" and how does that mean anything about this topic.

If a huge rock is falling from above you and I say "That rocks gonna hit your head"... are you gonna dismiss that as a "doomsday scenario"? The US dollar has lost half of its value in just the last decade. This isnt some kind of conspiracy theory... its a problem recognized by mainstream economists, and politicians in both parties. Its also structurally an impossible problem to solve which Is why long term I think it will become a huge problem.

[dre]

Ironic, then, how my friend from China just informed me of his desire to move to North America. He says all the talk about China's growth is half true, half misrepresentation.

The richer one is, the higher the debt one can afford. It's why people with more money generally have higher mortgages than people with less money.

Ironic, then, how my friend from China just informed me of his desire to move to North America. He says all the talk about China's growth is half true, half misrepresentation.

Thats not ironic at all. The US has spent a lot of that 14 trillion dollars on building a country thats pretty sweet to live in, and theres a pile of other reasons why the US is a great place to live... a relatively small population being one of big ones.

Even once China IS a super power, it still wont be as nice a place to live as the US right now. Theres just too many damn people.

[bush_cheney2004]

I think the 'rich' is a facade. China owns a good portion of the US debt....

Your statement is a facade....US public debt at the federal level is about $14 trillion, and over half of that is held by Americans. China holds only about $1 trillion of the total....I leave the math to you as an instructional exercise.

[maple_leafs182]

Your statement is a facade....US public debt at the federal level is about $14 trillion, and over half of that is held by Americans. China holds only about $1 trillion of the total....I leave the math to you as an instructional exercise.

Who cares who owns the debt, nobody will continue to buy the US bonds as the dollar continues to lose value.

Once the US dollar hits zero value, the US will be out of debt completely, and the system will be essentially rebooted. The US is the only country in the world that can play this card, and Im pretty sure thats what will happen eventually.

By rebooted do you mean a global depression?

[bush_cheney2004]

Who cares who owns the debt, nobody will continue to buy the US bonds as the dollar continues to lose value.

That's what was said five years ago....they are still snapping up Treasuries at auction.

Reality is inconvenient that way.

Edited January 7, 2011 by bush_cheney2004

[dre]

Who cares who owns the debt, nobody will continue to buy the US bonds as the dollar continues to lose value.

By rebooted do you mean a global depression?

Nope the Great American Reboot wont happen until it can happen without a global depression. Thats why it hasnt happened already. Countries with big trade surpluses with the US are propping it up by buying bonds because they know that if the US failed most of their exports would dry up, and their economies would fail or flounder as well.

As other large consumer markets emerge though it will become less important to continue the bailout.