The Dollar: Running on Reserve (Soon, China might demand that US bonds must be issued in Renminbi)

New Geography ^ | 7/30/2009 | Matthew Stevenson

[immadashell]

Paper money had its origins as bills of acceptance

Anyone care for California Dollars? Does the Constitution allow for state currencies?

[4rcane]

whats the difference between Renminbi and yuan.

[April Lexington]

Here is the allegory: You are walking through Central park one day and you come upon a bum sitting on a park bench. The bum says to you "Hey, sir or madame, I am homeless and unemployed. My liabilities greatly outstrip my assets. I need $1 million to have my teeth fixed and to take a vacation. Can you lend me the money?"

Would you lend this guy the money? Now... imagine you are the Chinese Minister of Finance and the bum is Uncle Sam...

[April Lexington]

Two words. Same currency. Its a cultural thing...

[April Lexington]

States can mint gold and silver coins but they can't issue currency under our Federal Reserve system. That's why they issue scrip or IOUs.

[FightThePower!]

Why the hell would China ever buy US bonds. They should be investing in their own country.

[SeekAndFind]

RE: whats the difference between Renminbi and yuan.

It is the same. RMB is the abbreviation of Ren Min Bi, or the People’s Money. It is the official currency in China.

Yuan is the base unit for RMB - just as Dollar in USD. This is the currency system in China:

Fen = cent
Jiao = dime
Yuan = dollar

So Yuan and RMB is not always the same (as Yuan is just one of the currency units in RMB), but they can often be used interchangeably. 2500 RMB and 2500 Yuan is exactly the same amount of money.

[Loud Mime]

Which brings us to today. Only goodwill (defined both as an accounting term and as political deference to military might) now supports the U.S. dollar as a reserve currency, which is what allows the United States to issue dollar-denominated bonds in world money markets.

I am not an economist, but have often wondered if the dollar's strength is tied to our military might. The writer seems to confirm this idea.

So, if we cut our military and continue to spend .....?

[MyTwoCopperCoins]

I’ve read elsewhere that one is a domestic currency, while the other is used in foreign trade.

It provides the Chinese authorities with more levers to manipulate, AFAIK.

[FromLori]

Related

http://www.freerepublic.com/focus/f-news/2305139/posts

[Cooter]

The problem with floating currencies is that they are susceptible to runs should the issuing country run up budget or trade deficits. Why should anyone lend money to a bad business just because the enterprise is a country with a flag?

The author states that floating currencies act as a check on government gone wild. How is this a bad thing?

[jnsun]

Sooner than we think, China and Japan, like all nervous creditors, may send the United States a letter,

Bingo, someone is getting it.

And all those Nobel economists, with few of them having a clue.

The Suntrade Institute says that recession, depression, inflation, are two forms of the same thing: the failure of the subject nation to produce. Either there is no money, because nothing is produced for return (depression), or there is worthless money, printed blatantly in spite of nothing being produced for return (inflation).

In the long run, and that is indeed "sooner than we think," the only way out of the spiraling abyss is conservatism; that is each individual facing the truth about one's self, one's worth, and one's responsibilities. Communism, Leftism, Socialism, is exactly the opposite: you are not to blame but rather others, the government (others) shall take care of you.

The whole success of America was based on the character of the individual. And that character was built through the imposing world of human freedom.

Johnny Suntrade

[Yo-Yo]

Let the world markets crast 25% again and we’ll see how quickly money flocks back into US Treasuries.

[Rummenigge]

Because if they stopped doing it the Dollar would fall to a degree that china couldn’t sell goods in the us anymore. They started doing it because they wanted to have some influence on the exchange rates and they had to put the dollars they where payed for somewhere.

[Rummenigge]

at that yield noone will really want to buy them - they will rather invest into infrastructure, commodities or companies.

[April Lexington]

The Chinese seem concerned that the dollar is going to be devalued and they’ll lose their investment in US treasuries. Gee, I wonder why they’re worried.

Old Chinese Proverb: "Never lend money to people who can't pay it back."

[April Lexington]

Let the world markets crast 25% again and we’ll see how quickly money flocks back into US Treasuries.

Actually, I did rather well in Swiss Francs last time!

[the invisib1e hand]

Only goodwill (defined both as an accounting term and as political deference to military might) now supports the U.S. dollar as a reserve currency, which is what allows the United States to issue dollar-denominated bonds in world money markets.

It's a bit more nefarious than that. A sovereign's promise to repay principal and interest is an implicit claim -- a presumption -- on a portion of the productive labor of current and future generations.