Topics > Economy
Dollar Being Isolated
Weisshaupt:
More milestones on the march to loosing the world's reserve status
UAE and China
--- Quote ---The currency swap agreement between China and the United Arab Emirates [UAE] signed during Premier Wen Jiabao’s tour of the Persian Gulf region ending today, will raise eyebrows in the western capitals, especially London and Washington. The list of countries with which China has such deals is slowly and steadily lengthening and this is the first such deal with a Gulf Cooperation Council [GCC] state.
The deal with the UAE is worth $5.5 billion — bilateral trade was $36 billion last year with Chinese exports accounting for two-thirds — and aims at “strengthening bilateral financial cooperation, promoting trade and investments and jointly safeguarding regional financial stability”, according to the Chinese central bank. China is, in essence, providing ’seed money’ so that businessmen wouldn’t need to convert every transaction into dollars, thereby lowering the foreign exchange costs.
--- End quote ---
Iran and India
--- Quote --- "India and Iran have agreed to settle some of their $12 billion annual oil trade in rupees, a government source said on Friday, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher U.S. sanctions."
--- End quote ---
Iran and Russia
--- Quote --- "Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow. The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said.
--- End quote ---
Russia and China
--- Quote ---in the first summit of the so-called BRIC countries." And judging by the market's reaction, and the dollar resurgence overnight it appears that everyone has read through this as just posturing. Furthermore, keep in mind that Russia was not even a top 10 trading counterparty of China in 2010. If China does the same with any of its top 10 partners then there may be a reason to worry. For now, China is merely testing the waters, and has absolutely no intent on isolating the US, nor making its nearly $3 trillion US FX reserves lose a double digit percentage of their value overnight.
--- End quote ---
- But don't worry, its just posturing. Until it isn't.
China and Japan
--- Quote ---Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies, the Japanese government said. Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday."
--- End quote ---
And this is of course in addtion to the BRICS Agreement and the coming plan to end the sale of oil in dollars
--- Quote ---"Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018," added.
--- End quote ---
Nothing to see here. These attempts are really ust getting a system of trade in place before the dollar goes away, to lessen the impact of it. The dollar is still the major reserve currency overseas and there is only so fast that can change. They may be able to keep it ( and the euro) afloat so that the dollar dies with a wimper instead of the bang, but die it will, and we will be left with 16+ Trillion in debt and 30-60 trillion in liabilities we need to pay for in a circumstance where we have lost reserve status and we can't just print our way out and export the problem.
That which cannot continue, won't.
Libertas:
What kills me is people thinking some other currency is any less fiat than ours...all currencies are built on a mountain of fog, suck the fog out of one, people will have ideas about another...next thing you know a little currency war turns into a real shooting war.
Oh well, gotta pass the time somehow...
::)
Weisshaupt:
--- Quote from: Libertas on January 23, 2012, 11:16:58 AM ---What kills me is people thinking some other currency is any less fiat than ours...all currencies are built on a mountain of fog, suck the fog out of one, people will have ideas about another...next thing you know a little currency war turns into a real shooting war.
Oh well, gotta pass the time somehow...
::)
--- End quote ---
Fiat is like the rule of Kings. You have the right King in place, and the kingdom is stable, the people are free, and the government is far more efficient than anything we can do with a Democracy. Of course, what we lack is a decent method of picking Kings.
A Fiat system administered with the wisdom of our Mythical Good King, would work fine, just as a kingdom works fine. Geither/Bernake and Greenspan were not good Kings. And how ever ever got off othe gold standard when the Consititution clearly mandates it, I will never understand. If I don't pay my taxes, can't I argue that the government expects them to be paid in and pay taxes in an illegal currency? I am no lawyer, but I expect at some point that did go to court and the court laughed and said, oh that bit of the Constitution? We excised that, just like we did the 9th and 10th amendments. Now pay us (in U.S. Mint gold coins at $20 value if you want) or go to jail. Now there was a case where an employer DID pay in U.S. Minted Gold and silver, and of course the Fed has been harrasing him for years, but he has yet to loose in court. I paid them $400 of 100% legal U.S. currency, and they owe taxes ( paid in fiat of course) on $400 dollars. The price of the gold in the coins is irrelevant. They are worth $20 each in U.S. currency. Now if only I could get my liberal employer to go along.
Anyway... other currencies are Fiat, but if they are administered by better kings, that may be a better bet, even if they aren't a much better bet. That was basically the thinking that allowed the dollar to become the reserve in the first place. Which govt do I trust to keep the currency more stable? My own, or the U.S. Government. In Argentina you were an idiot if you trusted the govt to do the right thing, and dollars (in cash) were the right thing to hold. Better than gold in many cases as the .999 pure stuff was accepted at "junk gold" jewelery rates as there was no easy way to verify the purity. We are in a race to the bottom now, but that doesn't mean someone isn't marginally better. In fact that is what Russia and China are couting on.. being the last man standing, and the worlds new reserve by default of the others.
I expect the interconectedness of things will still cause a worldwide depression as the dollar fizzles (after all we are a major market), but countries which have agreements in place will at least allow them to continue trading even if the dollar drops out suddenly. All that is needed is a stable medium of exchange ( and by stable I mean predictable - 3% inflation is fine as long as I know its 3% and will continue to be 3%.. Even gold and silver backed currencies can't promise that - the gold and silver rushes would cause economic havoc.. and yes the Federal reserve has an excellent record ( up till Nixon took us off of gold completely and even then some time after - wish I could find that link again- it was a good chart) of keeping the money value predictable..
Bototm line, a managed fiat system can, in theory, be a better currency system than one based on metals with potentially unpreditable production numbers, just as a Kingdom can, in theiry, be a better system of government than a Democracy or a Republic. The problem is, has been, and always be, in finding the people who can make them so. As that is the case, you pick from the alternatives you have, not the ones you wish you had, and that might very well be another system of fiat - doomed in the long term to failure by human failings, but pretty much everything humans do is. Good enough for now (or if you prefer "good enough for government work" ) is usually the best we can achieve.
Libertas:
I have no issue with what you are saying, but the key thing is the "peg", without the "peg" any fiat currency can kiss stability goodbye. The dollar became the world currency "peg" because it was the strongest and most stable, and was so for quite a while. Now, if nations decouple from the dollar, they are basically saying two things - our currency is stronger and more stable & the dollar is weaker and less stable. If more and more nations decouple form the dollar the immediate effect will be a dollar in freefall. Once that happens the "fog" as I call it is sucked out. The ripple effect in our economy will be felt world wide, putting pressure on these independent currencies or whatever new pegs may exist. Then there's the big fugly monkey in the corner, our national debt. Our bondholders will quickly demand repayment, but in what? The exchange value will be ridiculous. Either the other nations take it in the shorts and get paid in worthless dollars or they wait for the dust to settle and negotiate new terms. What if we just say screw it, were bankrupt, you got nothing but pulp in your hands? And some point the pain cannot be escaped by those currently running away, and at some point financial pain can translate into shooting wars and real pain. If I just got stiffed by someone who owes me, I might figure it is better to take some assets (land & resources) by force than accepting worthless currency, new empty promises or a raised middle finger.
PS-Love the idea of being paid in US gold coins and only owing taxes on the face value!!!
::whoohoo::
Weisshaupt:
India agrees to pay GOLD for OIL with Iran. But don't let anyone tell you that outdated shiny rock, a relic from ancient history, will ever be used as money again. You are fool to buy gold when you can hold dollar denominated assets. Gold is in a bubble. Get out now! ::smalldeadhorse::
--- Quote ---India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, debkafile's intelligence and Iranian sources report exclusively. Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets. By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
--- End quote ---
Move along. Nothing to see here.
Navigation
[0] Message Index
[#] Next page
Go to full version