RE: I believe buying state and municipal bonds would be a violation of the Federal Reserve act, but since when did the law apply to Bernanke?
State and municipal governments are so broke, and so desperate, that they are taking unprecedented steps to at least temporarily avoid bankruptcy. Nearly every state in the union is talking about legalizing some form of gambling, to boost tax revenue. California still wants to legalize marijuana, even though it was defeated in the recent election.
Of course, none of these ridiculous steps will work in the long run.
And the truly amazing thing is that the U.S. Federal government is in EVEN WORSE shape than the local governments! The only reason we haven’t seen the full brunt of this crisis yet on the federal level is because we’ve just continued to pile on more and more debt.
The states can’t print money... but the Federal government can (at least for now). And for the moment, this is all that is preventing a currency collapse of unprecedented proportions.
And this is the important point: What most people don’t realize is that the U.S. government can only continue printing dollars... as long as the U.S. dollar remains the world’s reserve currency.
Most Americans don’t believe the U.S. dollar could ever lose its spot as the world’s reserve currency. The question is this -— IS THIS STILL A VALID ASSUMPTION ?
Cheng Siwei, a former vice-chairman of China’s Standing Committee, said that China is going to stop putting so much money into U.S. dollars, and will instead look to the Japanese Yen and the Euro.
China holds more U.S. dollars than anyone else on the planet. But China is getting out of the U.S. dollar as fast as they can without crashing their own economy.
The New York Times reports that: “now, many shops in China no longer accept dollar-based credit cards issued by foreign banks... and foreigners cannot convert American dollars into renminbi beyond a given quota.”
Given all these factors, I cannot help but think that it’s not a matter of “if” the U.S. dollar will lose its status as the world’s reserve currency... it’s simply a matter of “when.”
“The only reason we haven’t seen the full brunt of this crisis yet on the federal level is because we’ve just continued to pile on more and more debt.”
This is true, but your debt/GDP ratio is actually pretty solid. Especially when compared with Europe and Japan.
If the Chinese want to piss away money then that’s their decision to make. I’m long on the US Dollar, provided it remains where it’s at I’m making money.
Then there’s the EURO which has completely fallen apart and continues to collapse. Why on earth would I want to be buying Euros in the middle of their sovereign debt crisis?
As soon as the dollar is no longer the world’s reserve currency, we will long for the days when we were just screwed. By that time, we’ll be far gone(VERY screwed).
I’d suspect we would push for a ‘world currency’ before we reached that point.