In fact, the rest of the world already is taking action - because they see our demise. We have fools preaching lies - that if we default it is "no big deal."
Fools.
Posted on 10/13/2013 12:31:40 PM PDT by SeeSharp
We use the term “reserve currency” when referring to the common use of the dollar by other countries when settling their international trade accounts. For example, if Canada buys goods from China, it may pay China in US dollars rather than Canadian dollars, and vice versa. However, the foundation from which the term originated no longer exists, and today the dollar is called a “reserve currency” simply because foreign countries hold it in great quantity to facilitate trade.
The first reserve currency was the British pound sterling. Because the pound was “good as gold,” many countries found it more convenient to hold pounds rather than gold itself during the age of the gold standard. The world’s great trading nations settled their trade in gold, but they might hold pounds rather than gold, with the confidence that the Bank of England would hand over the gold at a fixed exchange rate upon presentment. Toward the end of World War II the US dollar was given this status by international treaty following the Bretton Woods Agreement. The International Monetary Fund (IMF) was formed with the express purpose of monitoring the Federal Reserve’s commitment to Bretton Woods by ensuring that the Fed did not inflate the dollar and stood ready to exchange dollars for gold at $35 per ounce. Thusly, countries had confidence that their dollars held for trading purposes were as “good as gold,” as had been the Pound Sterling at one time.
However, the Fed did not maintain its commitment to the Bretton Woods Agreement and the IMF did not attempt to force it to hold enough gold to honor all its outstanding currency in gold at $35 per ounce. The Fed was called to account in the late 1960s, first by France and then by others, until its gold reserves were so low that it had no choice but to revalue the dollar at some higher exchange rate or abrogate its responsibilities to honor dollars for gold entirely. To it everlasting shame, the US chose the latter and “went off the gold standard” in September 1971.
Nevertheless, the dollar was still held by the great trading nations, because it still performed the useful function of settling international trading accounts. There was no other currency that could match the dollar, despite the fact that it was “delinked” from gold.
There are two characteristics of a currency that make it useful in international trade: one, it is issued by a large trading nation itself, and, two, the currency holds its value vis-à-vis other commodities over time. These two factors create a demand for holding a currency in reserve. Although the dollar was being inflated by the Fed, thusly losing its value vis-à-vis other commodities over time, there was no real competition. The German Deutsche mark held its value better, but German trade was a fraction of US trade, meaning that holders of marks would find less to buy in Germany than holders of dollars would find in the US. So demand for the mark was lower than demand for the dollar. Of course, psychological factors entered the demand for dollars, too, since the US was seen as the military protector of all the Western nations against the communist countries for much of the post-war period.
Today we are seeing the beginnings of a change. The Fed has been inflating the dollar massively, reducing its purchasing power in relation to other commodities, causing many of the world’s great trading nations to use other monies upon occasion. I have it on good authority, for example, that DuPont settles many of its international accounts in Chinese yuan and European euros. There may be other currencies that are in demand for trade settlement by other international companies as well. In spite of all this, one factor that has helped the dollar retain its reserve currency demand is that the other currencies have been inflated, too. For example, Japan has inflated the yen to a greater extent than the dollar in its foolish attempt to revive its stagnant economy by cheapening its currency. So the monetary destruction disease is not limited to the US alone.
The dollar is very susceptible to losing its vaunted reserve currency position by the first major trading country that stops inflating its currency. There is evidence that China understands what is at stake; it has increased its gold holdings and has instituted controls to prevent gold from leaving China. Should the world’s second largest economy and one of the world’s greatest trading nations tie its currency to gold, demand for the yuan would increase and demand for the dollar would decrease. In practical terms this means that the world’s great trading nations would reduce their holdings of dollars, and dollars held overseas would flow back into the US economy, causing prices to increase. How much would they increase? It is hard to say, but keep in mind that there is an equal amount of dollars held outside the US as inside the US.
President Obama’s imminent appointment of career bureaucrat Janet Yellen as Chairman of the Federal Reserve Board is evidence that the US policy of continuing to cheapen the dollar via Quantitative Easing will continue. Her appointment increases the likelihood that demand for dollars will decline even further, raising the likelihood of much higher prices in America as demand by trading nations to hold other currencies as reserves for trade settlement increase. Perhaps only such non-coercive pressure from a sovereign country like China can wake up the Fed to the consequences of its actions and force it to end its Quantitative Easing policy.
And I when it stops being the reserve currency all of those dollars being held overseas will come rushing home. The result? Inflation the likes of which we’ve never seen before.
And whose money will be stepping in to fill the spot of the US dollar?
I would guess the Chinese Yuan.
The Chinese now export as much as we do. Much of it, to us.
We have “solved” our trade situation by importing everything. Now we just may learn, how foolish that has been.
BRING BACK US MANUFACTURING.
To America.
“And whose money will be stepping in to fill the spot of the US dollar?”
China or precious metals. Most likely both.
In fact, the rest of the world already is taking action - because they see our demise. We have fools preaching lies - that if we default it is "no big deal."
Fools.
I don’t think the world is ready to accept the Chinese yuan over the US dollar quite yet. Nor an IMF bill.
Well we could debate that and, hope to heck we decide correctly.
Or ... we could bring back American industry, have a balanced budget, a healthy growing economy, and improve American employment for generations to come.
I vote for Plan B.
We need a someone. A democrat or a republican, ANYONE to be brave enough to mention that America currently is embarked upon a policy of destroying ourselves.
Bring back American jobs.
Now.
You may also be interested in this article:
http://www.zerohedge.com/news/2013-10-13/chinas-official-press-agency-calls-new-reserve-currency
The #2 lender to the US, second only to the Federal Reserve, is calling for a new reserve currency to replace the US dollar. This article appeared in Xinhua, the official Chinese press agency.
The Bible says the borrower is slave to the lender (Proverbs 22:7). By electing officials who run up huge deficits and make promises that require even larger deficits, and by abusing credit themselves, Americans have collectively ignored this wisdom, and are responsible for their sorry status.
The IMF has already considered the prospects of an end in US$ reserve status. It will be very interesting to watch transpires when the Chinese and the oil exporting countries decide to replace the US Dollar as the unit of exchange for their export goods. Interesting, but not fun, because the party will be over.
I agree that a default would be bad for the government and for the US$, but it is not unprecedented.
The basic definition of default is “failure to fulfill an obligation”. With this definition, I argue that the US has defaulted at least three times in the past century.
First, in 1933, when it confiscated gold from US citizens. Prior to the confiscation, the US issued gold certificates, which promised payment in gold upon demand, as currency. The US refused to honor these certificates in 1933.
Following gold confiscation, the US issued silver certificates as currency. The US refused to honor silver certificates in 1964.
Even though US citizens were prohibited to own gold since 1933, the US represented that the US$ had a gold redemption value of $35/oz in international trade. This was reset several times at higher prices, and the US balked at making physical delivery against redemption. In 1974, the US formally refused to honor its gold redemption promises.
Each of these earlier cases is “failure to fulfill an obligation”.
Governments have a very long history of disappointing their creditors and those who use its currency. The US government is no exception.
Make unions illegal or optional and the manufacuring would come back like a boomerrang.
History gives us windows to the past, but it does not give us a view of all its doors.
The events of today are ordained by God.
A US default, in today's global economy, and with the United States on the run militarily, economically, and politically would be national suicide.
You must see this truth.
Plan B is the winner, IMO too.
Business leaders are quietly saying pass the amnesty bill and the manufacturing will come back like a boomerang.
Make unions illegal or optional and the manufacturing would come back like a boomerrang.
As soon as our national bankruptcy is complete. We’ve only entered the early stages at the moment.
What the power elites plan on is a global “EBT” card for all, cash will no longer be necessary.
China simply CAN NOT fulfill the role of the world's reserve currency. It is a non-tradable currency. You can not move money in and out freely. Its domestic banks are probably bankrupt, sitting on trillions of yuan of bad debt due to politically-directed lending and corruption.
The US would have to get A LOT worse for the Chinese Yuan to look attractive to anyone, IMHO. I would rather hold gold and silver.
Ummm, you forgot ‘min. wage’, OSHA, EPA, et.c and the highest corp. tax rate of the WORLD. Why the HELL would biz. come back to the U.S. to get raped left/right by gov’t??
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