The Hell with Egypt, it's small potatoes compared to this looming

[whateverdude]

http://money.cnn.com/2011/02/10/markets/dollar/index.htm

 

It's all over for the US economy if this happens. Inches away from a turd world economy.

[TPS]

http://money.cnn.com/2011/02/10/markets/dollar/index.htm

 

It's all over for the US economy if this happens. Inches away from a turd world economy.

Why?

[whateverdude]

Why?

Implications of the loss of the dollar’s reserve status

 

As the dollar loses its reserves status, at least half of the world’s $5,385 billion dollar reserves will be sold off and replaced with other currencies (yuan, euro, khaleeji, gold, rand, etc…). The US, with its $71 foreign reserves, will not be able to do anything to counteract this mass exodus from the dollar. With outflows of this magnitude, the dollar’s value will collapse to a fraction of where it is now.

 

The process of foreign nations extracting themselves from the dollar is not going to be pretty. The likely impacts are:

 

1) The dollar’s value will plunge as investors see the writing on the wall and jump ship.

 

2) US credit markets will collapse. As the dollar fall, a mass exodus from credit market will begin. Investors sitting on toxic securities will sell at firesale prices to escape the currency depreciation.

 

3) The fed’s balance sheet will explode beyond all reason. In response to the mass exodus from credit markets, the fed will buy trillions worth debt in a desperate attempt to hold interest rates down. Unfortunately, the more debt the fed buys, the more quickly the dollar will fall, and the more panicked the credit selloff will become.

 

4) US interest rates will soar, despite (or because of) the fed’s efforts.

 

5) Countries around the world will be hurt badly by the dollar’s decline. These countries include:

 

A) Nations which are heavily dependent on US exports: Japan, Mexico, etc…

B) Nations with large dollar reserves: Japan, China, Gulf oil states, etc…

C) Nations which receive large amount of US foreign aid: Israel, Egypt, etc…

D) Nations which rely on remittances from citizens working in the US: Mexico, India, etc…

E) Nations which use dollars as their official currency: Liberia, Panama, etc…

F) Nations which have large amounts of dollars in circulation: Central and South America (especially Argentina), Eastern Europe, etc…

 

6) Some nations will see benefits from the dollar’s decline. These countries include:

 

A) Nations with large gold reserves: EU zone, Switzerland, etc…

B) Nations which owe dollar denominated debt will see that debt wiped out: Iceland, African nations, etc…

C) Nations who stable currencies: EU zone, Switzerland, China, etc…

 

7) World politics will be greatly altered. There will be considerable anger at the US from nations hurt by dollar’s fall. The US will lose influence to Asia (mainly China).

 

US retailers will get crushed. As the dollar falls, the cost of imports for retailers will increase, but the American consumer will be unable to afford to these higher prices. Competition between desperate retailers will force them the sell inventory at below cost, creating massive losses. Retailers most heavily dependent on imports (ie: Wal-Mart) will be the first to go under. Eventually as more and more retailers go bankrupt, the few survivors will be able to raise prices enough to cover costs, and the sector will stabilize at a fraction of its current size.

 

9) American lifestyles will change radically. The end of cheap oil, low interest rates, and deficit spending will mean a lower quality of life and higher taxes.

 

10) The price of gold and other precious metals will explode.

 

11) US will experience hyperinflation.

[DC Tom]

...

 

That's probably overstated, as the IMF's SDR structure seems like it would still include the dollar as a reserve currency. Just not the reserve currency.

 

I don't trust the IMF's analysis of the SDR's hypothetical stability, either. Seems rather over-simplified...almost like they think the international currency markets don't exist, so the collapse of one currency won't affect others, and hence not their SDRs.

[whateverdude]

Bill Gross:

The developed world is coping with the excesses of the past 20 to 30 years. The deleveraging cycle isn't just a one-to-two-year thing. The proportions of the excess, and now the attempts to deal with it, have a number of consequences. For one, growth will be slower, and inflation will be lower. In the U.S., we're seeing unacceptably high levels of unemployment—not just the published 9.4%, but 16% to 17%. The question is, can a debt crisis be solved with more debt?

 

In Portugal, Greece, Ireland and Spain, which lack the ability to devalue their currencies, a debt crisis can't be solved with more debt. Japan appears to have done a good job so far, because its debt is 200% to 250% of GDP, much higher than here. The U.S. has the advantage of being a reserve currency, which means it can print its way out of this situation. But that requires a willing acceptance on the part of creditors that the money it is printing is of decent value. Current interest rates, including a federal-funds rate of only 0.25%, are unacceptably low. Real [inflation-adjusted] interest rates are negative. Printing your way out of this, or kicking the can, is possible for some countries, but the solution isn't to create paper. It is to create goods and services the rest of the world wants to have.

 

We need to remain the reserve currency in order to print our way out of this.

Edited February 11, 2011 by whateverdude

[DC Tom]

We need to remain the reserve currency in order to print our way out of this.

 

Good plan. We need to destroy the dollar to save it. It's "Vietnamizaiton" economics.

[Peace]

Bill Gross:

 

 

We need to remain the reserve currency in order to print our way out of this.

 

Tom's point is that the dollar will for the foreseeable future, remain a reserve currency, even if (and it's a solid if" the IMF adopts this SDR idea. It's not like 8 currencies are going to leave the USD in the dust if the SDR idea is adopted.

 

And if it forces us to balance our books, so be it. It's due.

[whateverdude]

Tom's point is that the dollar will for the foreseeable future, remain a reserve currency, even if (and it's a solid if" the IMF adopts this SDR idea. It's not like 8 currencies are going to leave the USD in the dust if the SDR idea is adopted.

 

And if it forces us to balance our books, so be it. It's due.

LOL, the worlds economies will not stand for QE 3,4,5 after June when QE 2 sunsets. It's very predictable that people such as yourself will suffer from a normalcy bias as the situation worsens.

 

Good plan. We need to destroy the dollar to save it. It's "Vietnamizaiton" economics.

Not saying its a great plan, in fact it's terrible, but it is happening right now. What other tools do we have, we seem to be locked into this.

Edited February 11, 2011 by whateverdude

[DC Tom]

Tom's point is that the dollar will for the foreseeable future, remain a reserve currency, even if (and it's a solid if" the IMF adopts this SDR idea. It's not like 8 currencies are going to leave the USD in the dust if the SDR idea is adopted.

 

And if it forces us to balance our books, so be it. It's due.

 

Actually, my point was that the IMF is being disingenious. They want to create a "basket" of currencies that backs the IMF SDRs...so they'll ask a bunch of countries to contribute their currencies (including the dollar - so it wouldn't be a wholesale move away, which was another point) to said "basket" at a fixed rate of exchange to the SDR.

 

So basically...they're recreating the Euro.

 

And claiming "It'll be stable!"

 

Convienently forgetting the concerns about the Euro's stability w/r/t the instability in the economies of even junior Eurozone members like Greece and Ireland.

 

Did I say "disingenious"? I meant "!@#$ing stupid". Bunch of ivory-tower theorists who think their "but this time it's different!" theory trumps reality.

 

But your point - the dollar's not going away soon - is also valid. The IMF can't force countries to move away from the dollar - at most, they can offer an alternative, and perhaps force countries that borrow from the IMF to use it. But no one's going to abandon the dollar wholesale because the IMF says so.

[whateverdude]

 

But your point - the dollar's not going away soon - is also valid. The IMF can't force countries to move away from the dollar - at most, they can offer an alternative, and perhaps force countries that borrow from the IMF to use it. But no one's going to abandon the dollar wholesale because the IMF says so.

That is true, but can you ever remember a time when there was so much talk about replacing the dollar? Patience is running thin with our current monetary policy. The US is living on its reputation and very little else at the moment. Forecast China, Russia, japan and France drops us within a year and half if we continue QE

Edited February 11, 2011 by whateverdude

[Peace]

That is true, but can you ever remember a time when there was so much talk about replacing the dollar? Patience is running thin with our current monetary policy. The US is living on its reputation and very little else at the moment. Forecast China, Russia, japan and France drops us within a year and half if we continue QE

 

QE is retarded, but only every dollar of it.

 

No one is "dropping us" in 18 months. China is already selling dollars. Other countries will too but it's in no one's interest to drop a currency they hold a shitload of.

Edited February 11, 2011 by Peace

[whateverdude]

QE is retarded, but only every dollar of it.

 

No one is "dropping us" in 18 months. China is already selling dollars. Other countries will too but it's in no one's interest to drop a currency they hold a shitload of.

St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Already happening slowly, China has, So far talked about SDR, arranged a slew of bilateral currency swaps, and piled up on gold. None of the approaches is the end solution. But it'd be foolish not to take their effort seriously.

Edited February 11, 2011 by whateverdude

[....lybob]

QE is retarded, but only every dollar of it.

 

No one is "dropping us" in 18 months. China is already selling dollars. Other countries will too but it's in no one's interest to drop a currency they hold a shitload of.

This has been happening for awhile - people have been inching towards the exits, the problem is that that the euro isn't a particularly safe option either and there are no other contenders for reserve currency, china has been doing currency swaps and trying to move into tangible assets but it is a slow process as they don't want to destroy either their dollar assets or market for their goods, China's main goals now are improving their own domestic markets and to move up the value chain on their exports.

[DC Tom]

That is true, but can you ever remember a time when there was so much talk about replacing the dollar? Patience is running thin with our current monetary policy. The US is living on its reputation and very little else at the moment. Forecast China, Russia, japan and France drops us within a year and half if we continue QE

 

QE is asinine (I still want to know why they call it "quantitative easing"...no one I've asked seems to know. Was it just because "debt monetization a la Enron" was too damned transparent?)

 

But no one's slitting their own throats dropping the dollar in 18 months. China's entire economy is geared towards absorbing a massive trade surplus with the US, and would self-destruct if the dollar collapsed and that surplus went away. Russia and France might, just on anti-American grounds...but who the hell takes France seriously anyway? More likely France and Germany start fighting over Euro policy than France attacks the dollar...

[meazza]

QE is asinine (I still want to know why they call it "quantitative easing"...no one I've asked seems to know. Was it just because "debt monetization a la Enron" was too damned transparent?)

 

But no one's slitting their own throats dropping the dollar in 18 months. China's entire economy is geared towards absorbing a massive trade surplus with the US, and would self-destruct if the dollar collapsed and that surplus went away. Russia and France might, just on anti-American grounds...but who the hell takes France seriously anyway? More likely France and Germany start fighting over Euro policy than France attacks the dollar...

 

Wait for another crisis and everyone will go run to treasuries again. When things are booming, everyone talks tough but when the going gets tough...

[DC Tom]

Wait for another crisis and everyone will go run to treasuries again. When things are booming, everyone talks tough but when the going gets tough...

 

Y'know...every so often you post, and I think "I remember back when when this doofus idiot used to be a doofus idiot..."

[meazza]

Y'know...every so often you post, and I think "I remember back when when this doofus idiot used to be a doofus idiot..."

 

Speaking of doofus idiots, what ever happened to Ed?

[Acantha]

But your point - the dollar's not going away soon - is also valid. The IMF can't force countries to move away from the dollar - at most, they can offer an alternative, and perhaps force countries that borrow from the IMF to use it. But no one's going to abandon the dollar wholesale because the IMF says so.

Wouldn't you think they would want to do it on their own? This thread seems to be focusing on the 18 month timeline, which is valid, but I think given an alternative most countries would welcome the option of getting out of the dollar. Why would anyone want money that loses value so quickly?

 

China is of course a big puzzle piece. They have so many dollars that changing would put a pretty a big hurt on them,but holding the dollar is going to be almost as bad...just in longer terms. And while no country would want to bring that type of pain on themselves, China is at least in very good position in to get themselves out of that pain. Unlike the US, China actually has things to sell!

 

No matter the timeline, if another reserve currency is available, our economy is going to tank. We may not get those trillions of dollars flooding back into the system as quickly as the article makes it out, but printing those next hundreds of trillions needed to keep us afloat is going to be next to impossible. Just wait until the oil producers decide to jump ship.

[meazza]

Wouldn't you think they would want to do it on their own? This thread seems to be focusing on the 18 month timeline, which is valid, but I think given an alternative most countries would welcome the option of getting out of the dollar. Why would anyone want money that loses value so quickly?

 

China is of course a big puzzle piece. They have so many dollars that changing would put a pretty a big hurt on them,but holding the dollar is going to be almost as bad...just in longer terms. And while no country would want to bring that type of pain on themselves, China is at least in very good position in to get themselves out of that pain. Unlike the US, China actually has things to sell!

 

No matter the timeline, if another reserve currency is available, our economy is going to tank. We may not get those trillions of dollars flooding back into the system as quickly as the article makes it out, but printing those next hundreds of trillions needed to keep us afloat is going to be next to impossible. Just wait until the oil producers decide to jump ship.

 

As Tom stated above (and what was mentioned before the Euro crisis) the Euro was supposed to be that new currency. Then what happened? Bad news and everyone panics. Investors have the emotional stability of pregnant women. Do you really trust the CNY to be the next global currency just because everything is made in China? I wouldn't bet on it, but what what do i know?

[Acantha]

As Tom stated above (and what was mentioned before the Euro crisis) the Euro was supposed to be that new currency. Then what happened? Bad news and everyone panics. Investors have the emotional stability of pregnant women. Do you really trust the CNY to be the next global currency just because everything is made in China? I wouldn't bet on it, but what what do i know?

The Euro argument is a good point and may very well be the case in the near future. But I do think China changes things. I honestly think they're big and bad enough that what China wants, China will get (economically speaking of course). Though for the record, the only reason I brought up China having things to sell is because that makes it more plausible that they can recover from dumping dollars despite how deep they are, not because that would be why the rest of the world would follow. But like you said, who knows?

Edited February 11, 2011 by Faustus