The Ultimate Destruction of the US Dollar and World Markets Will Not Happen

[sptrawler]

What you have to remember konkon is, life existed before the U.S dollar was the reserve currency, actually the U.S as the reserve currency is a very recent phenomenom.
The monetary systems will collapse unless a there is an underpinning commodity that is finite to give it a value.
Just having a fiat system where by a country just prints more money is unsustainable.
Compounding will make wages worthless within a short period of time.

 

[konkon]

What you have to remember konkon is, life existed before the U.S dollar was the reserve currency, actually the U.S as the reserve currency is a very recent phenomenom.
The monetary systems will collapse unless a there is an underpinning commodity that is finite to give it a value.
Just having a fiat system where by a country just prints more money is unsustainable.
Compounding will make wages worthless within a short period of time.

The $US as a reserve currency might be relatively new, but it has grown with all the sophisticated and complex trading instruments around the world. The $US is a part of nearly every different type of trade in a more sophisticated manner than any other reserve currency throughout history. This is a key difference and another reason why it can't go out of existence.

I've read about the commodity (gold) standard theories and they don't apply to what's going on these days. The world is a far more complex place for a gold standard to be used and for it to be effective. There is so much wealth and debt in the world, and so many complex investment instruments that a return to some type of gold standard would NOT work; even if it was tried for a while.

 

[sptrawler]

The $US as a reserve currency might be relatively new, but it has grown with all the sophisticated and complex trading instruments around the world. The $US is a part of nearly every different type of trade in a more sophisticated manner than any other reserve currency throughout history. This is a key difference and another reason why it can't go out of existence.

I've read about the commodity (gold) standard theories and they don't apply to what's going on these days. The world is a far more complex place for a gold standard to be used and for it to be effective. There is so much wealth and debt in the world, and so many complex investment instruments that a return to some type of gold standard would NOT work; even if it was tried for a while.

That is all well and good, but at the end of the day money is only numbers on a spread sheet. When it goes all ape sheet there has to be a reset.
This happened with the South American debt in the 70's or 80's, if I remember correctly their interest payments exceeded their g.d.p.
The debt was written off, now Brazil is doing quiet well.
It can be a bit like a company revaluing shares, one minute you have 10,000 shares valued at $2 , next minute 10 for 1 consolidation, you have 1,000 shares vaued at $2.

 

[konkon]

That is all well and good, but at the end of the day money is only numbers on a spread sheet. When it goes all ape sheet there has to be a reset.
This happened with the South American debt in the 70's or 80's, if I remember correctly their interest payments exceeded their g.d.p.
The debt was written off, now Brazil is doing quiet well.
It can be a bit like a company revaluing shares, one minute you have 10,000 shares valued at $2 , next minute 10 for 1 consolidation, you have 1,000 shares vaued at $2.

I think that sets of resets over different periods is what you're going to get. It will largely come down to debtors and creditors fighting it out. But unlike share revaluations, there will be write-downs (40 cents in the dollar type of stuff). In anticipation of this kind of thing, you may get conflicts brewing and they may not be sorted out in the markets alone!

One of the criticisms I have of those that think that we can go back to a gold standard is their expectations of the price of gold; which would apparently skyrocket to unprecedented levels. In the practical world, it most likely wouldn't, at least for too long. The main reason for this is the synthetic curbs that authorities can place on trading ie gold, like margin hikes. Another reason, is because birds of a feather tend to flock together. In this case, other commodities would go much higher or would want to go much higher by default. But this can't be the case. It would begin to cripple economies even further and demand destruction would take effect. Prices would be volatile under those circumstances, but would drop as much and as fast as some of the moves up.

 

[konkon]

China is in trouble (in the long run) and here's one reason why: If China keeps buying US treasuries/dollars then the US dollar will drag the (pegged) yuan down. But this is a problem when China's +10% growth means the yuan should be going the other way - up! And at around 5% per year, at least. So there is a spread in the dynamics in China, which pretty much means high inflation down the track. Which means interest rates there should be going up much higher and faster than what is happening right now. Problems down the track.

Now look at an alternative. If China stops buying US treasuries/dollars, like many are predicting, then there will be a run on the US dollar. It may collapse, which would create volatility in markets around the world, kind of like we saw in October of 2008. Vickers said that China not buying US bonds will trigger a meltdown, far worse than 2008. He was shorting and making money back then and knows what he is talking about. It's a question of whether China stops buying US bonds.

Either scenario is problematic for China. Where did it all go wrong? I think I know, I'm just being dramatic.

So much for the zero-sum-gain theory. Who wins in either scenario?

I'm not happy with this passage of mine. Clarification needed: "If China keeps buying US treasuries/dollars then the US dollar will drag the (pegged) yuan down. But this is a problem when China's +10% growth means the yuan should be going the other way - up! And at around 5% per year, at least."

What I wanted to say here is that China is going to have a stronger yuan down the track, even by default if Vickers is right (and even if his theory doesn't eventuate), and this is not something China would want. A stronger yuan is on the cards in the long term, in many macro possible case scenarios.

There might be another passage like this one that I needed to clarify in one of my threads. This clarification should suffice.

China would want to devalue its currency tho in the distant future, but kind of like Japan (and for some different reasons), it may not be able to.

 

[konkon]

I've been reading up on the possible demise of the US dollar and have viewed many Youtube documentaries (many of which are quite good) on the future of the American currency and its impact on global markets. I have also discussed this with many people here and I'm surprised many don't see its potential downfall as an issue. What am I missing?

I still believe the USD will firm up in a few years and the Fed may have to, by default, increase interest rates in the US. But it will fall further over the next year, I guess. That might depend on whether the Fed in the US stops the quantitative easing. If it does, then the US dollar might drop even further. Maybe. Quite difficult to predict, but very important to know. Is it going to continue to fall no matter what the Fed does? The Fed may just slow the process down.

When the Fed does stop its quantitative easing, there will be more volatility on the markets. You can be sure of this. The VIX will rise and fall with greater frequency and momentum. Quantitative easing has soften the VIX at the moment.

"That might depend on whether the Fed in the US stops the quantitative easing. If it does, then the US dollar might drop even further."

Meant to say if the fed continues QEs the usd will continue to fall.

"The Fed may just slow the process down." No with QEs, the fed is helping devalue the usd.

 

[Glen48]

The USA will go on printing until it all tanks, the problem will be if and when other countries refuse to buy USD bonds.

 

[explod]

The USA will go on printing until it all tanks, the problem will be if and when other countries refuse to buy USD bonds.

And obviously they have begun to:

In the US, the Fed has candidly admitted in print (in the recently released Z-1 flow of funds report) that it bought 61 percent of ALL the debt issued by the US Treasury in 2011

from (The Privateer Newsletter) Early April issue.

The path of the dollar is unsustainable and therefore the dollar will not be sustained. In time, the dollar will join a crowd of multiple reserve currencies, be subordinated to SDRs, be rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities

from "Currency Wars" James Rickards, Penguin 2011 at p.255

 

[Tyler Durden]

I read somewhere (can't remember where now) that China may be wanting to get the yuan as the reserve currency.

 

[konkon]

The path of the dollar is unsustainable and therefore the dollar will not be sustained. In time, the dollar will join a crowd of multiple reserve currencies, be subordinated to SDRs, be rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities

from "Currency Wars" James Rickards, Penguin 2011 at p.255

I think the $US is very much sustainable. For one, it is too interconnected to most asset classes and investments, indirectly if not directly.

Those SDRs are interesting, and if it's the sort of thing the IMF might be behind, then even more of a reason to keep the IMF at bay! I'm not surprised the US decided not to fund the IMF this time round.

I wouldn't be surprised if many are watching what the IMF does and if it tries to sway from its mandates to ie. 'help' poorer nations. If the IMF tries to push for an alternative reserve 'currency' (I don't think it can for many reasons) or tries to push for another alternative currency, then this will trigger (maybe already has) alarm bells in the US. The IMF is no match for the US, anyway.

Gold can be an alternative 'currency' play to the $US but it's no match.

 

[Glen48]

Other than this you may be correct:


http://www.yolohub.com/economy/22-red-flags-that-indicate-serious-doom-is-coming

 

[konkon]

Other than this you may be correct:


http://www.yolohub.com/economy/22-red-flags-that-indicate-serious-doom-is-coming

Yes, this was an interesting article.

"The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy. It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is." from the article

How does something like this happen and is it true? I keep hearing about these derivative exposures but it still doesn't make sense as to how high this number can be. Are they based on contractual arrangements that will one day need to be met with part payments of real money, as that sort of capital doesn't exist.

If this is true, then is this why I keep reading about possible future non USA backed (but backed by some organization that's in the press a fair bit!) SDRs needed maybe to honor contractual derivative agreements?

If this happens, and hopefully the derivative stories are just that, then does this mean an attempt at an alternative reserve currency?

A possible attempt at best I think.

If, and this is a big 'if', these dots can be connected like this, then this should, I'd say, concern those in the USA that want to see the USD as the reserve currency. The USA doesn't have enough $US to commit to these programs (if you can call them this!) for logistical and restrictive reasons. If it was to commit in part with $US, it would most likely devalue the USD very quickly (which no one wants!).

The call for maybe (you know which organization's) SDRs to soak up the refinancing, debts, part payments etc, by implementing possible future SDR bonds or really synthetic fiat paper (!), would potentially be a paradigm shift in world markets.

Maybe and just maybe the USA should look at creating synthetic contractual bonds of their own (even putting forward the blueprints in secret) just in case it heads down this path and the stories I keep reading about and listening to on ie finance programs, become a little more real than I would personally hope for.

 

[Glen48]

BoA the bank that got 11B of the feds and then use it to pay back 10 b they borrowed under tarp and got a pat on the back for and Morgans hold the largest number and most at risk.
Think four big banks in USA stand to loose the most.
Depends if you believe we will have another depression just like we have been doing every 80 yrs or so since records were kept or it is just a down turn.
Will know for sure by Xmas.

 

[konkon]

BoA the bank that got 11B of the feds and then use it to pay back 10 b they borrowed under tarp and got a pat on the back for and Morgans hold the largest number and most at risk.
Think four big banks in USA stand to loose the most.
Depends if you believe we will have another depression just like we have been doing every 80 yrs or so since records were kept or it is just a down turn.
Will know for sure by Xmas.

If the central banks at large don't cut-off supply, then a depression in the future, kind of like the one in the 30s, is off the table, I think, in the near future. The Fed won't want to cut supply, but the ECB has inherent restrictions that originally came with the formation of the EU, or around about that time. Germany won't want to backstop a higher percentage of debts or run the risk of doing this. One reason why the EU and the euro is potential toast, down the track, especially in its current state. Maybe an EU and euro mark II is on the agenda.

But how long can central banks around the world, at large, keep printing to help with refinancing, debt restructuring etc on a large scale? Economic models, theories etc will continually be tested, as they already have been. And what will be some of the trade-offs and consequences moving forward. Mounting debts is a major problem, for sure, as are other consequences on macro and micro levels.

The care-factor of large and unprecedented debts is also unprecedentedly low, and this has to be another concern.

The financial and monetary systems are not making a lot of sense to a lot of people and investors etc.

Is it possible or even likely to have a world wide depression, when the supply of money just keeps rolling in? I would imagine it is, but can it still be avoided while central banks go on their printing frenzy? The fed would have us believe that a depression is or will be avoided if the supply of money just keeps coming in. But how long can this go on before one added straw breaks the camel's back? The supply of money to Greece is still on to some extent, and their debts have been reduced, but surely they're in a depression and probably will be for some time.

On the issue of the euro, this is (to me, at least) a foreign currency to the EZ nations; not being able to print your own money to suit your nation's individual interests at different times but instead going to the ECB for loans, like you and I would to a retail bank, is a really big deal. One of many of my criticisms of the EZ and the euro.